Outline
• Introduction and steps of the transaction
• At the time of the acquisition
• Setting-up the acquisition structure
• Transfer taxes
• During the life of the structure
• Deductibility of financial expenses
• Tax consolidation
• Debt push down
• Deductibility of transaction costs
• Cash repatriation
• At exit
• Capital gains / Exemption regimes
• Merger
• Conclusion
Next Steps of the Transaction
• Conduct a thorough due diligence process to identify any potential tax risks or opportunities
• Binding Offer between the seller and the buyer
• Prepare and negotiate a Share Purchase Agreement (SPA) with the Sellers
• Obtain any necessary regulatory approvals
• Complete the transaction on the closing date and provide the funding
At the time of acquisition
• Acquisition Price: 300 million Euro
• Funding Structure
• Equity investment by Vanish Fund: €130 million
• Debt borrowed from external lenders: €190 million
• Transaction Cost: € 20 million
• Transfer Taxes: Need to pay 0.1% of the purchasing price.
Deductibility of Financial Expenses and Acquisition Expenses
Consolidated EBITDA (Mining Co & Diamond Sub) of € 41MM allows for complete tax deductibility of
financial expenses (€ 9.5MM)
>Notes: Calculation of financial expenses: one-off cost of 20MM*0.7=14MM + 190MM*0.05=9.5mm
annually
Acquisition cost VAT recuperation – establishing services at the level of Holding 3 eligible for VAT
system
Asking tax authorities for immediate refund of VAT expenses recorded for acquisition costs
€ 20MMx0.3=6MM*20%VAT=1.2MM that we seek to be paid back
Debt/Equity ratio=1.46 (below the threshold of 1.5)
Tax consolidation
• Holding 2 is the head company of the consolidated group
• Conditions:
• Not owned by another French company
• Head company owns more than 95% of share capital
• Same fiscal year (calendar year)
• Consolidation possible from 1 Jan 2024
• CIT levied on Holding 2
• Dividend payments 99% exempt from taxation
• Increased tax deductibility of financial expenses (consolidated EBITDA)
• Transaction cost deductible expenses
• Financing cost available for offset against taxable income against Mining Co and Diamond
Sub
Debt push-down
• Gold Sub is outside France – outside the consolidation group
• Portion of debt transferred to Gold Sub to create tax shield benefits in a profit-
generating entity
• Dividends used to cancel newly assumed debt
• Dividends 1% taxable (tax leakage)
Cash repatriation
• Modalities:
• Intragroup debt
• Dividends
• Tax consolidation
• Dividend distribution 99% tax-exempt for recipient
• No withholding tax (EU countries)
• Tax liability at the level of Holding 2
Exit Scenarios
Scenario 1:
The exit would take the form of a sale by Holding 1 of its shares in Holding 2:
• A sale by Holding 1 should benefit from the participation exemption applicable in
Luxembourg
• Providing for a full exemption of the capital gain
• Subject to conditions (minimum holding period of 1 year and minimum shareholding of 10%
or €30m in value).
• Further to an exit, the proceeds from the sale will be at the level of Holding 1 and will have
to be repatriated to the Vanish fund.
• It is possible to repatriate cash from a Luxembourg holding company without triggering tax
leakages (typically, via liquidation of Holding 1).
Scenario 2:
• An exit may also be completed through a sale of Holding 3 by Holding 2 (almost never
happens in practice).
• A sale of Holding 3 by Holding 2 should benefit from the participation exemption applicable
in France:
• providing for an 88% exemption of the capital gain,
• subject to conditions (minimum holding period of 2 years and minimum
shareholding of 5% notably).
• The remaining 12% portion of the capital gain is subject to CIT at the standard rate of 25%
(plus the surtax of 3.3%), hence an effective tax rate of 3.1%.
• Further to an exit, the proceeds from the sale will be at the level of Holding 2 and will have
to be repatriated to the funds.
• Such repatriation may trigger tax leakages, as it is unsure that a dividend distribution from
Holding 2 to Holding 1 (and then Truly Fund) would benefit from a withholding tax
exemption.
