EPI 4 Investor plc - European Property Investments

The rental income from this projectwill be subject to tax in Ireland at25 % but with a credit for the Germantax of 15.835 %. The profit on sale ofbuildings is likely to be treated astrading profit derived from an Irishtrade ( where certain managementfunctions relating to the trade arecarried out in Ireland ) and will besubject to tax in Ireland at 12.5 % witha credit for the German tax arising onthe same income.Exit can be arranged by way of sale ofthe underlying properties followedby the declaration of a dividend fromthe Irish company to Irish Holdco. Irishwithholding tax should not apply onthis dividend and Irish Holdco shouldnot be subject to any Irish tax onreceipt of the dividend. Any remainingsurplus in the Irish subsidiarycompany can then be paid out to theshareholders by way of liquidationof the Irish subsidiary company. Tothe extent that the distribution onliquidation does not exceed the costof the shares acquired in the Irishcompany by Irish Holdco, no Irishcapital gains tax should apply.Irish Holdco has also been invited toparticipate in Project Erba by way ofan advance of development funds.The profit in this Investment will eitherbe treated as trading income, taxedat 12.5 % or as passive income tax at25 %. Depending on the structureof the Investment in Germany, it ispossible that German withholdingtax could apply on the payment toIrish Holdco from this participationor, if structured as a passive loan,no German tax should apply on theinterest payment to Ireland.In terms of return on investment tothe shareholders in Irish Holdco, itis not planned that Irish Holdco willpay any dividends to its shareholders.To the extent that funds becomeavailable to Irish Holdco during theterm of the fund, any such surplus canbe used to repay shareholder loansin Irish Holdco without applicationof additional tax. Clearly any suchrepayment of shareholder loanswould be limited to the value of suchloans. We understand that those loanswould carry no interest and therefore,there would be no expectation ofinterest or other profit on repaymentof the shareholder loans.Once the shareholder loans havebeen fully repaid, there will be noexpectation of any further distributionof profit until final wind up of IrishHoldco. Once all of the Germaninvestments have been disposed of andall liabilities have been satisfied, IrishHoldco would, based on projections,at that stage hold significant cashfunds. It is planned to liquidate IrishHoldco and to release these funds tothe shareholders. Once the disposalof all investments is completed, andassuming the proceeds from all suchdisposals are held as non - chargeableassets ( Euro cash e. g. current account,deposit account etc. ), then no furthercapital gains tax should arise for IrishHoldco on the distribution of thesefunds on liquidation.The receipt of funds on distributionto the shareholders will be treatedas the disposal of shares in IrishHoldco by the investors and the gainis subject to Irish capital gains tax.The capital gain would be computedas being the difference between thefunds distributed on liquidation tothe shareholder less the base cost( i.e. the price paid for the shares ) lesstransaction costs associated with thepurchase of the shares in Irish Holdco.The capital gain will be subject tocapital gains tax at the rate in force atthe time of the disposal. The currentrate of Irish capital gains tax is 20 %.We understand that some Self-Directed Pension Plans, PersonalPension Plans and executive pensionfunds may contribute pension fundsto Irish Holdco. For those pensioninvestors, which are accepted bythe Revenue Commissioners to beapproved schemes, then underSection 608 TCA 1997, a full exemptionto capital gains tax is available to thepension fund.This document should be consideredas a brief summary only. Ernst & Younghas provided a more comprehensivetaxation opinion to the promoterswhich should be considered carefullyby investors before proceedingwith the Investment. This summarydocument does not substitute for adetailed tax opinion and should notbe relied upon as such.33