(A)Operation of Luxembourg holding company in Zoomlion merging CIFA Italy
in July 2008, Zoomlion revealed from its disclosed transaction announcement that the company would jointly invest total amount of € 271 million in buying out Italian Compagnia Italiana Forme Acciaio S.p.A (CIFA). Partnered along with Fang Hongyi Investment (Zoomlion's second largest shareholder Jia Zhuo Group affiliates), Mandarin Capital and Goldman Sachs Group, Zoomlion indirectly acquired 60% stake of CIFA through an offshore company. The acquisition report disclosed that, Zoomlion jointly funded a special purpose company B through another special purpose company A (both in Hong Kong) established by its holding company in Hong Kong, in which company A holds 60% company B's stake. Company B set up a wholly-owned subsidiary company C in Luxembourg. Company C established another of its subsidiary company D, also in Luxembourg. Company D then opened a wholly-owned special purpose company in Italy, which purchased 100% equity of CIFA in acquisition, the Italian special purpose company then merged with CIFA after the operation was complete. The process is showing as below:
Seen from the above, core key to this acquisition is the Luxembourg holding company (SOPARFI).
Value of investment structure and M & A activities in Europe through Luxembourg holding company
SOPARFI has no particular corporate form, but the most common types are company Co., Ltd. (SA) or limited liability company (SARL). Such holding companies are advantageous in corporate structure management, administration and financial as well as tax planning. Mainly as follows:
Benefit from extensive tax treaty network
Entitle to EU preferential tax treatment
Withholding tax concessions: exemption from withholding tax on profits distributed to shareholders
Dividend withholding tax: 0% (in certain circumstances)
Capital gains withholding tax: 0% (in certain circumstances)
Royalty withholding tax: 0%
Income liquidation withholding tax: 0%
Easy to operate
According to "Hong Kong - Luxembourg Double Tax Agreement' signed in November 2007, Luxembourg companies may be exempt or pay a lower rate of withholding tax when paying dividends, profits or royalty fees. Applied to previously mentioned Zoomlion's M & A procedure, we can clearly see that after CIFA's merging with Italian special purpose company, the Luxembourg holding company will become the parent company with 100% stake of CIFA. Therefore, all dividends, bonus and royalties paid to shareholders by the Italian subsidiary will directly go to their Luxembourg holding company. According to EU Parent-Subsidiary, Interest and Royalties Directive, when SOPARFI holds more than 10% shares of a subsidiary, its dividends, bonus and royalties receiving from the subsidiary are not subject to tax. That being said, it is important for Chinese enterprises to take advantage of this kind of structure for significant cost saving when it comes to overseas investment. Moreover, Luxembourg has always been renowned for its political, social and economic stability, implicit legal framework, and its democratic and efficient government institutions. Therefore, it is not surprising when we see Luxembourg contains holding companies of the world's largest iron and steel enterprises - Arcelor Mittal (Arcelor Mittal), BAT (British American Tobacco), eBay, Skype's, Microsoft Europe, and the European Investment Bank, European Monetary Fund, Bank for International Settlements, Scotland Royal Bank and so many other well-known international financial institutions.
(B) Procedure of SANY acquiring Germany's Putzmeister Holding Limited through Belgian holding company
Chinese capital investment in Germany surprisingly increased in 2011 during European debt crisis, surpassing the U.S. for the first time in terms of investment projects. According to the data from German Federal Ministry of Foreign Trade and Investment Agency, Chinese investment projects in Germany amounted to 158 in 2011, 110 more than that of the United States. According to a research report about China's large and medium-sized companies from Ernst & Young in 2012, Germany is the first choice for many Chinese enterprises when considering overseas investment. Among all the investment in Europe from Chinese companies, 63% of those happen in Germany. Germany is most valued for their traditional advantages in research and development, continued investment, and highly trained and qualified technicians hatching from dual education system; "made in Germany" to some extent has become a global quality assurance. For reasons discussed above, SANY Heavy Industry started the acquisition of "German Teacher" and machinery giant Putzmeister eight years after Shenyang Machine Tool merging Schiess AG.
According to SANY announcement, upon the completion of acquiring Germany Putzmeister Holding Co., Ltd through its shareholders Karl Schlecht Stiftung and the Karl Schlecht along with CITIC Industrial Investment Fund (Hongkong) Co. Ltd., SANY Germany Co., Ltd.- indirect holding subsidiary company of SANY Heavy holds 90% stake while CITIC holds the other 10%.
Although it is hard to tell how many layers SANY Heavy and SANY Germany has from existing announcement of the project, according to their H-share listing, SANY Germany already set up another subsidiary for SANY Heavy in Germany through SANY International Development Co., Ltd. and then through its subsidiaries SANY Belgian holding company. In fact, because of its unique central location in Europe, it is quick and efficient for companies in Belgium to reach all European and international corporate headquarters. Along with all the highly qualified professionals, Belgium has successfully attracted many large international companies in setting up their European operational headquarters, service centers, logistics centers or R & D center. Just like China and Hong Kong has signed agreement with Luxembourg on double taxation avoidance and smuggling prevention, they also have the same agreements with Belgian so that its tax advantage is comparable to that of Luxembourg.
In summary, when making investment and acquisitions with European companies, our suggestion is that Chinese companies should take advantage of Luxembourg/Belgium holding company structure and supplementing by Hong Kong intermediate holding company according to their specific needs for a particular project, in order to reduce investment risk and maximize related taxes savings as a result.
