biotech success in switzerland and the bay area -

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European Expansion Involving Intellectual

Property

The Swiss Perspective

Thomas Linder

San Francisco, January 9th, 2013


ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND

CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING

PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO

ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the

associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through

consultation with your tax adviser.

US tax law: Basics of IP Planning


Business Advantages and Potential Tax Benefits

Potential business purposes− Integrate newly acquired operations− Centralize management functions by region− Eliminate redundancies− Consolidate IP ownership and entrepreneurial risk to make the

enterprise more nimble − Provide greater focus on non-US markets

Potential tax benefits− Reduce financial reporting effective tax rate − Reduce global cash tax rate


Key Issues to Be Addressed

Jurisdiction of IP HoldCo and Principal Co Need to move or hire new personnel in principal location Character of future revenues for US and non-US tax purposes

− Important for subpart F and withholding taxes Conversion transactions from current structure

− IP “buy-ins”− De-risking of manufacturers and distributors− Corporate restructuring to facilitate cash movements

Future IP ownership and funding structure Future transfer pricing policies


IP Ownership Alternatives

Option Pros Cons

License from USP

No upfront US exit tax cost (PCT) or foreign exit tax cost

“Hedge” if foreign profit goals not met

Permanent commensurate with income risk High tax rate unless FTCs available

Qualified Cost Sharing

Significant tax benefit potential if foreign ops successful

Netting foreign IP with U.S. allowed Other safe harbors apply (U.S. T/B,

partnership)

Periodic adjustment trigger in 1.482-7 Potential tax detriment if foreign ops profit

goals not met

Nonqualified Cost Sharing

Significant tax benefit potential if foreign ops successful

Freedom to structure arm’s length terms without 1.482-7 restrictions

No netting against foreign IP -- cross licensing risk; also outside other safe harbors

Potential tax detriment if foreign ops profit goals not met

IP

Partnership

Potentially no US exit tax cost (PCT) on transferred IP and/or royalty

Ongoing tax benefits of CSA available Special allocations can enhance tax

planning

Complexity of partnership allocations Complexity of deferral planning

Switzerland


Low tax rates…

Jura

Vaud

Bern

Valais

Ticino

Glarus

Luzern

Fribourg

Neuchâtel

AargauZ ü rich

Thurgau

Schwyz

St.

GallenZug

Uri

Jura

Vaud

Valais

Graubünden

Glarus

Luzern12.1%

Fribourg

Neuchatel

Aargau18.9%

Zürich21.2%

Thurgau16.4%

Schwyz14.0%

St. Gallen17.1%

Zug

Uri

16.0%

Bern21.6%

21.9%%

15.1%

12.7%

12.7%

NWOW

Genève

Schaffhausen

BL

Basel

SO

ARAI

Tessin

22.5%

16.5%

16.7%

20.7%

15.1%

21.6%

23.5%

24.2%

21.0%

19.6%

21.3%20.7%


…but not a tax haven jurisdiction!

Strong domestic industry

Export oriented

High production costSwiss Domestic Businesses66% of GDP

Swiss Multinationals24% of GDP

Foreign Multin.

10%


Swiss Mixed Company – Basic Concept

“Multi-purpose” vehicle

Statutory ETR of 8.5 – 12%

Applies to Swiss branches of foreign companies as well

Reduction of tax base can lead to substantially lower ETR

• Depreciation (IP)

• Hybrid instruments

• Branch exemption

• Principal company

Statutory ETR of 8.5 – 12%Further reduction of ETR through base erosion

Expenses (80%)

Foreign CompanyForeign Company

SwissCompany

Income (80%)

Parent Co


Case Study 1: Pharmaceuticals

US Parent Co

Lux Holding Company

SwissPrincipal

Foreign Limited Risk Distributors

Contract Manufacturers

Customers

IP

ETR of 5 - 8%

Fee Mgt


Case Study 2: Internet based business

US Parent Co

Lux Holding Company

SwissHeadquarters

Foreign IP Company

Foreign Rep Companies

Subscribers

Merchants

RoyaltyMarket Support Fee

Fee

ETR of 2 - 5%

IP

Mgt


Case Study 3: Electronics

Parent Co

SwissPrincipal

Foreign Contract Manufacturers

NL Holding Company

Customers

IP

Foreign Limited Risk Distributors

ETR of 2 - 5%

Foreign Management

Mgt

Fee

Thomas LinderDirector, International Corporate Tax

KPMG AGBadenerstrasse 1728004 Zurich

Email: [email protected]: +41 44 249 23 07Mobile: +41 79 597 67 72

mailto:[email protected]

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