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Beneficial Ownership IFA – 20 th April 2010 Andrew Senior – Head of Tax Rabobank International London Branch

Beneficial Ownership IFA – 20 th April 2010 Andrew Senior – Head of Tax Rabobank International London Branch. Beneficial Ownership. Why are we concerned? Taxing rights and withholding taxes Different views of taxing authorities Evolving markets Cross border transactions

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Beneficial Ownership IFA – 20 th April 2010 Andrew Senior – Head of Tax Rabobank International London Branch

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  1. Beneficial Ownership IFA – 20th April 2010 Andrew Senior – Head of Tax Rabobank International London Branch

  2. Beneficial Ownership • Why are we concerned? • Taxing rights and withholding taxes • Different views of taxing authorities • Evolving markets • Cross border transactions • Affects custodians and customers • Need for a system to deal with large volumes of transactions

  3. Beneficial Ownership Interest on Securities Owner Owner needs to reclaim withholding tax or claim reduced rate/exemption

  4. Beneficial Ownership Dividend Stripping? “Owner 1” Interest Sale/Repo arrangement Manufactured payments Cash “Owner 2” • Legally Owner 2 owns stock • Commercially Owner 2 has lent money to Owner 1 who remains “long”. • What if Owner 2 is in a “better” jurisdiction

  5. Beneficial Ownership Market Sale & Repo arrangement Owner n Sale & Repo arrangement Owner n + 1 • Owner n + 1 is in a “good” jurisdiction • Who is the “economic” owner? • What if Owner n+1 is in a “better” jurisdiction than someone else in • the chain?

  6. Beneficial Ownership Market Market Sale 3 Sale 1 Sale 2 Swap Counterparty Owner Swap 1 Swap 2 Market Owner legally owns 1,2 & 3? Owner economically owns 3

  7. Beneficial Ownership The Environment Payments of income sometimes subject to withholding Derivative payments not subject to withholding Ability to transfer legal ownership of securities whilst retaining economic ownership Scope for tax arbitrage Large volumes of transactions, many “plain vanilla” Need for a system for reclaiming withholding tax and making payments

  8. Beneficial Ownership Transactions Sales/Purchases Sales & Repo Stock Loan Matched book trading Swap of economic interest Sub-participations Collateral - ISDA Collateral Support Annexe - Pledge Transactions structured to transfer tax credits

  9. Beneficial Ownership Other Approaches of Tax Authorities • UK manufactured dividend rules • US Foreign Account Tax Compliance Act (FATCA) • Impose withholding tax in certain circumstances where the Exchequer might be at risk

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