FOURTH EDITION|China Outbound Investment GuideA fully bilingual guide published inconjunction with| :Arendt & MedernachBezen & Partners Bharucha & PartnersBlakes, Cassels & GraydonCandioti Gatto Bicain & OcantosG Elias & CoHomburgerP+P Pllath + PartnersWongPartnershipHomburger provides high quality legal advice andrepresentation both domestically and internationallyin signifcant transactions, disputes and complexlegal matters to businesses and entrepreneurs.Corporate | M&A Financial ServicesLitigation | ArbitrationIP | ITCompetitionTaxEmployment LawPrivate ClientsRestructuring | Insolvency White Collar | InvestigationsInsuranceHomburger AGPrime TowerHardstrasse 201 | CH-8005 ZurichP.O. Box 314 | CH-8037 ZurichT+41 43 222 10 00F+41 43 222 15 00www.homburger.chlawyers@homburger.ch Transactions,Disputes, Advice, , Homburger_Imageinserat_210x285mm_002_CLP_ZH.indd 1 21.03.13 13:28www.chinal awandpracti ce.com CHI NA OUTBOUND I NVESTMENT GUI DE 2013>>1I NTRODUCTION | EditorDavid Tring (david.tring@euromoneyasia.com)+852 2842 6964TranslatorSusan Mok (susan.mok@euromoneyasia.com)+852 2842 6924Staf writerEve Yao (eve.yao@euromoneyasia.com)+852 2842 6916Production managerAndy Alcock (andy.alcock@euromoneyasia.com)+852 2842 6928 PublisherPeter Ollier (peter.ollier@euromoneyasia.com)+852 2842 6941Published byAsia Law & PracticeEuromoney Institutional Investor (Jersey) Ltd27/F, 248 Queens Road EastWanchai, Hong Kong EUROMONEY INSTITUTIONAL INVESTOR (JERSEY) LTD 2013ISBN 978-962-936-215-7DisclaimerThe material in this periodical does not constitute adviceand no liability is assumed in relation to it. The materials referred to in this publication are publicly available. All information contained herein was believed to be correct at the time of publication in May 2013All rights reserved20135Directors, Euromoney Institutional Investor(Jersey) LtdPeter Richard Ensor, Tony Shale, Anita RyeDivisional director, Legal Media Group Danny WilliamsHead of marketing, AsiaThomas BerryCEO, Euromoney Institutional Investor, AsiaTony ShaleSUBSCRIPTIONS & CUSTOMER SERVICE:Gareth FoxTel: +852 3416 6615Fax: +852 2842 7019Email: gareth.fox@euromoneyasia.com UK hotline: +44 (0) 207 779 8999US hotline: +1 212 224 3570Email: hotline@euromoneyasia.comINTRODUCTION | Welcome to the China Outbound Investment Guide 2013. As always, outbound investment increased considerably in the past year. At the end of 2012, Chinese companies outbound investment stood at $77.2 billion, up 14% from the previous year. Of those investments, $37.8 billion or 49% consisted of M&A transactions, up from 44% in 2011. These gures propel the country into the number three spot in terms of global outbound investment rankings, behind the US and Japan. The increase in Europe-bound investments, which rose 21%, is noteworthy. The US also received a large share of China outbound investment, up 48% from the previous year. Some of the largest deals in 2012 included Bright Foods acquisition of 60% of cereal maker Weetabix, China Investments purchase of 10% in Londons Heathrow Airport and Sany Heavy Industrys takeover of Putzmeister Holding, Germanys largest concrete pump maker. These gures and deals show that China outbound investment is diversifying. Companies are looking to tap into new areas and also acquire well-established brands. Foreign companies are also warming up to Chinese investments, as they can provide the perfect opportunity to introduce products into the mainland market. It is a good strategy for Western companies, said one lawyer who worked on the Bright Food deal. Chinese people are known for their adoration of brand names and through this deal the UK outt could become an instant hit in China. Outbound investments are set to increase further and the deals are going to become more complex. This is backed up by the fact that the Chinese government is encouraging privately-owned enterprises to invest outside of the countrys borders. While state-owned enterprises (SOEs) have dominated the outbound investment so far, privately-owned companies are ready to move. There is much that private companies can learn from SOEs, but they need to be cautious.The importance of due diligence and integration planning are areas private companies need to work on. Realising the signicance of these issues early on will help ensure investments are successful. Thank you to all the rms who participated and I hope you nd this guide useful. 2013201277214%37849%201144% 21%48%201260%10% David Tring|Editor|25Itcanbehardtobeoptimisticaboutinvestmentoppor-tunitiesinArgentina.Forasecondconsecutiveyear,the countrys economy has endured infation at an annual rate of 25%,whichgraduallydeterioratesthecompetitivenessofmost economicactivities.Importsofallkindsaresubjecttosignif-cantrestrictionsandbureaucracy,causingconsiderabledelays incustomsclearing,orworse,efectivebans.Exchangecontrol restrictions imposed by the Central Bank constitute insurmount-ableobstaclesforthepaymentofdividendsorrepatriationof capital to foreign investors. Ofcial statistics are considered unre-liable and companies ofen resort to private consultants for more accurate data. In2012,theArgentinegovernmentrenationalisedYPF,the largest oil producer of Argentina that had been sold by the gov-ernment to Spains Repsol in the early 1990s. Restrictions on the accesstoforeigncurrencybyindividualshasgreatlyincreased andmorerecently,duringthefrstquarterof2013,thegovern-ment imposed a three-month freeze on supermarkets retail prices and restricted retail. AslowingoftheArgentineeconomy,combinedwitha weakeningoftheglobaldemandforcommoditiesproducedby Argentina are at the origin of such trade restrictions and capital controls.Variousindependentconsultants forecastArgentinasGPDgrowthfor2013ata disappointing 0.9%. InSeptember2011,ChinasMinistryof Commerce,theMinistryofForeignAfairsand theNationalDevelopmentandReformCom-missionpublishedtheIndustryGuidelinesfor OutboundInvestmentinVariousCountries(),whichisintendedtoprovidesmalland medium-sizedenterprises(SMEs)withanoverviewofforeign investmentpriorities,foreigninvestmentregulationsandindus-trialdevelopmentzonesin115countriesaroundtheworld. Argentinaisexcludedfromtheindustryguidelines,mostlikely because Chinese state-owned companies already dominate most ofthepromisinginvestmentopportunitieshere,leavinglittle roomforSMEactivity,accordingtoDereckScissors,senior research fellow at Te Heritage Foundation, a conservative think tank based in Washington DC.In spite of this seemingly unattractive business environment, Chinese companies continue to invest in Argentina, mainly in the oil and gas and mining sectors. Total investment in Argentina by Chinese businesses over the past 10 years surpassed US$20 billion at the end of 2012. TwoareasforChineseinvestorstofocusoninthecoming years are the pharmaceutical industry and oil and gas exploration. Relativetoitssize,Argentinahasasignifcantpharmaceutical drugs market with annual sales of almost US$5 billion. Tere are approximately 300 pharmaceutical laboratories in Argentina, out ofwhichtheeightlargestcompaniescontrolnearly80%ofthe pharmaceutical drugs market. Due to increasing labour costs and infation, smaller laboratories are faced with the need to merge or sell their products. A trend of consolidation of the pharmaceuti-cal sector in Argentina has already been observed since 2010 and it is expected that in a few more years, the total number of labo-ratories will be signifcantly reduced by way of mergers and asset acquisitions. Equal treatment under law for Chinese investors Argentine law protects foreign investors on an equal footing with localbusinesses.TeUSConstitutioninspiredtheArgentine Constitution,whichwaspromulgatedin1853.However,its draferssetthedistinctgoalofdevelopingimmigrationpolicies to settle the territory, stimulate commerce, avoid desert territories and enlarge the country. From the outset, the Argentine Consti-tutiondeclaresinitspreamblethatitisadoptedforallmenof the world who wish to dwell on Argentine soil. Morespecifcally,Article20oftheConstitutionguarantees equal treatment under the law to all foreigners living or carrying out any business in Argentina. It literally provides that: foreign-ers in the Argentine territory enjoy all the civil rights of a citizen; theymayengageintheirindustry,tradeorprofession,own, purchaseortransferrealproperty,Teyarenotobligatedto assume citizenship, or to pay extraordinary compulsory taxes. Te Argentine foreign investment law No. 21, 382 of 1976 and its implementing regulations further establishes that: 1)ForeigninvestorsmayinvestinArgentinainanyeconomic activitywhetherindustrial,mining,oilandgas,agricultural, commercial,fnancial,retailorservices,withouttheneed for any type of prior approval and under conditions equal to those applicable to Argentine investors. Only a few activities areexcludedfromthisprinciple,likebroadcastingandthe acquisitionofrealestateinfrontierareas.Tereisalsono obligationtobeassociatedwithdomesticinvestorsorany other type of restrictions or conditions.2)Foreigninvestorsareentitledtorepatriatetheirinvestments A time to seize opportunitiesBy Alejandro CandiotiCandioti Gatto Bicain & OcantosIn spite of this seemingly unattractive business environment, Chinese companies continue to invest in Argentina, mainly in the oil and gas and mining sectorsARGENTI NA67Legal vehicles for investment Chinesecompaniesandbusinessowners maycarryouttheiractivityinArgentinaon apermanentbasisthroughvariousmeans. Teseincludetheappointmentofalocal commercialrepresentative,thesettingupof an Argentine branch, incorporation of a local corporateentity(subsidiary),theacquisition ofequityinanexistingArgentinecompany andenteringintoajointventureagreement or the settling of a trust. Temaintypesofinvestmentvehicle utilisedbynon-residentindividualsand foreigncompaniesarethebranchandthe localcommercialcompany,intheformofa corporation(sociedadannima)oralimited liabilitycompany(sociedadderesponsabili-dad limitada). Branch of a foreign companyAnycompanydulyorganisedandexisting inaccordancewiththelawsofthePeoples RepublicofChinaoranyothercountrymay setupabranchinArgentina.Inprinciple, itisnotnecessarytoallocatecapitaltothe Argentinebranch.Tebranchmustkeep separate accounting records in Argentina and fle annual fnancial statements with the local commercial companies supervisory authority. Froma fscaland social security standpoint, the branch is treated under Argentine law as an entity separated and distinct from its home ofce. Commercial company Commercialcompaniesmusthaveatleasttwoshareholdersor members,whichcanbeeithercorporateentitiesorindividuals. AminimumcapitalofAR$100,000isrequiredforcorporations. Contributionsinrealestate,equipmentorothernon-monetary assets must be made in full at the time of subscription. Except for specifc cases provided by law, there are no national-ity or residence requirements for ownership. Foreign individuals, whether resident in Argentina or not, or foreign companies, may hold up to 100% of the share capital. Transfers of shares of a cor-porationaregenerallyunrestrictedandanylimitationsincluded in the companys by- laws may not efectively impair the transfer-ability of shares. Te company can be managed by a single manager or director, orbyaboard.Tereisnonationalityrequirementallofthe directorsormanagersmaybeforeignersbutinallcompanies themajorityofmanagersordirectorsmustbedomiciledin Argentina to ensure managements ability to perform its duties. Other investment vehicles Other legal vehicles that Chinese companies and businesses may use to invest in Argentina are joint ventures and trusts. Tejointventureinstrumentmostcommonlyusedin ArgentinaistheUninTransitoriadeEmpresas(UTE).AUTE isacontractualbusinessarrangementbetweentwoormore persons,whichmayincludeforeigncompaniesandindividuals, made for the exploitation of a particular business or commercial endeavour. A UTE is not a legal entity separated from its parties, but rather a contract law instrument. However, Argentine federal andlocaltaxandsocialsecuritylawstreattheUTEasdistinct taxpayersandemployers.OneofthekeyattractionsoftheUTE legalregimeisthatitallowstheallocationindiferentpropor-tionsofapartyscontributionobligations,shareofproftsand enduranceoflosses.JointventuresotherthanUTEsarealso permitted under the general principles of Argentine law. Argentine taxation TeArgentinetaxsystemmaybedividedintothreecategories: taxes,chargesandcontributions.Chargesandcontributionsare normallylowerthantaxesandareintendedtocompensatethe state for some specifc activity in the form of individualised service tothepartycalledtaxpayer.Mosttaxesareleviedasindirect consumertaxes.CertainArgentinetaxes,likeVAT,turnover taxes and stamp duty, are similar in form and nature to such taxes in China, however rates tend to be higher in Argentina. Federal taxes 1)Corporateincometax:Tegeneralrateapplicabletothe taxableincomeofcompaniesis35%.Dividendsdistributed up to the net taxable income are not taxed further. Localcompanies,branchesofforeigncompaniesand foreignindividualsdomiciledinArgentinaaretaxedona worldwideincomebasis.Teymaycreditforeignincome taxes against their Argentine tax liability up to the amount of ALEJANDRO CANDIOTIPartnerAlejandro Candioti is an international transaction lawyer based in Buenos Aires and a partner at Candioti Gatto Bicain & Ocantos. He handles the full range of corporate work, principally mergers and acquisitions and contracts. He also advises on joint ventures, privatisations, reorganisations, divestments, private equity and other commercial arrangements and associated regulatory issues. Also, a signicant part of his practice has involved assisting clients in public offerings and private placements of equity and debt securities.While he covers the full range of business markets, much of Alejandros work is concentrated in the information technology, oil and gas, and pharmaceutical industries. In addition to representing clients on their acquisitions, disposals and restructurings he also has wide expertise of advising on shareholder disputes.His varied professional practice has given him the ability to advise clients across a broad range of commercial and nancing issues, providing experienced counsel and executive judgment when needed.Alejandro is a mentor at Endeavor, a non-prot organisation headquartered in New York that transforms emerging markets by establishing high-impact entrepreneurship as the leading force for economic development.He is a member of the Advisory Board of the Argentine-Chinese Chamber of Commerce and is actively involved in the business and trade development activities of the Chamber.He also writes frequently on business law issues affecting Chinas inbound and outbound investment, and operates www.leychina.com, a source of China legal and business information in Spanish for his clients and anyone interested in China.AUTHOR BIOGRAPHYARGENTI NA89investment in, and production of, capital goods, information technology,telecommunicationsandagriculturalmachinery (Decrees 379/2001, 917/2010, 362/2011).VAT reduction of 50% in the purchase and import of fnished capitalgoodsandITandtelecommunicationsproductsand parts(Decrees493/2001,496/2001,615/2001,733/2001, 959/2001).Reductiontozerooftarifsonimportedcapitalgoodsthat make up a complete and independent production line (Reso-lution 256/2000).Temporaryimportofcapitalgoodswithoutbeingsubjectto importduties,foraperiodofuptothreeyears(Law22415, Decree1001/1982;CustomsOfceResolution34/1998, Decree 142/2010).101130%1)10%2)3)4)AFIP2012 (sociedad annima) (sociedad de re-sponsabilidad limitada) AR$100,000100%UninTransitoriadeEmpresas (UTE)UTEUTEUTEUTEUTE1)35%35%10%35%(Alejandro Candioti)Endeavor-www.leychina.com1215Foreigndirectinvestment(FDI)intoCanadafromChina, largely from Chinese state-owned enterprises (SOEs), has rapidly increased in recent years. In 2004, FDI from China stoodatC$113millionandin2011,itreachedC$10.9billion. Tisincreaseisprimarilyattributabletogrowinginterestin Canadas natural resource sector and is highlighted by a number ofsignifcantinvestmentsoverthepastfewyears,including,for example,the2011acquisitionbyChinaPetroleum&Chemical Corporation(Sinopec)ofCanadianconventionaloilandgas producer Daylight Energy for C$2.2 billion and the 2011 acquisi-tionbyChinaNationalOfshoreOilCorporation(CNOOC)of Alberta oil sands developer OPTI Canada for C$2.1 billion. Most recently, on December 7 2012, the Minister of Industry approved CNOOCsproposedacquisitionofNexenforC$15.1billion, whichrepresentsthelargestforeignacquisitionbyaChinese SOE.AllsignspointtosustainedandlikelyincreasingChinese foreign investment in Canada, particularly as demand for natural resources and energy continue to increase.Increasing scrutiny of foreign investmentTeincreaseininvestmentfromChinacomes atatimeofheightenedgovernmentandpublic scrutinyofforeigninvestment.InMarch2012, theCanadianCouncilofChiefExecutives published a paper entitled Chinese Foreign Direct Investment in Canada: Treat or Opportunity? Te paperexaminestheimpactonCanadaofAsias risingeconomicpower.Teauthorcallsonthe federal government to depoliticise the foreign investment review process and adopt a streamlined national security test.WhileforeigninvestmentsbySOEsarecloselyscrutinised, concernsregardingforeigninvestmenthavenotbeenlimitedto SOEs.TeCanadiangovernmentspreliminarydecisiontodeny Anglo-AustralianminerBHPBillitonsproposedacquisitionof Canadas Potash Corporation of Saskatchewan in 2010 generated signifcantcontroversy(BHPBillitonultimatelydroppeditsbid fortheCanadiancompany)anddemonstratedthatthegovern-ment will not hesitate to turn down transactions that it does not consider to be of net beneft to Canada.Closer economic tiesTe current Canadian government is highly interested in increas-ing economic ties with China and expanding foreign investment in Canada. In February 2012, Canadian Prime Minister Stephen Harper and Chinese Premier Wen Jiabao signed a series of joint initiatives, including agreements to cooperate on energy, natural resources,technology,innovationandagriculture.Teyalso concluded18yearsofnegotiationstowardadefnitiveChina-Canada Foreign Investment Promotion and Protection Agreement (FIPA),whichwassignedbyCanadasMinisterofInternational TradeandMinisterfortheAsia-PacifcGateway,EdFast,and ChinasMinisterofCommerce,ChenDeming,onSeptember8 2012. Te FIPA is designed to confer greater protection to foreign investors against discriminatory treatment and serves to enhance predictability of the policy framework afecting foreign investors andtheirinvestments.ItwastabledintheCanadianParliament on September 26 2012 and is now awaiting ratifcation.Inaddition,onAugust152012,CanadaandChina announcedthereleaseofajointEconomicComplementarities Study,highlightingpotentialbilateraleconomiccomplemen-taritiesandprospectsforgrowth.Testudyexaminesseven economicsectors(includingnaturalresources,machineryand equipment, transportation, infrastructure, aerospace, clean tech-nologyandenvironmentalgoodsandservices)andreportsthat itscompletionfacilitatesformingthefoundationofexploratory discussionstodeepenCanadian-Chinesetradeandeconomic relations. It concludes that: Canadian and Chinese governments shouldcontinuetodeepenandstrengthenourbilateraltrade and investment ties through appropriate bilateral instruments to ensure that Chinese and Canadian citizens can continue to build a prosperous and sustainable future.Also, on November 11 2012, the Canadian government signed a long-awaited double tax treaty with Hong Kong, which should facilitate trade and investment, particularly from Hong Kong into Canada. Te treaty also may present new opportunities for struc-turing some investments by Chinese enterprises into Canada. Foreign investment under the ICATeInvestmentCanadaAct(ICA)isafederalstatuteofbroad applicationregulatingtheestablishmentandacquisitionsof control of Canadian businesses by non-Canadians. Except with respecttoculturalbusinesses,theInvestmentReviewDivision ofIndustryCanada(InvestmentCanada)administerstheICA underthedirectionoftheMinisterofIndustry.Transactions involving business activities relating to Canadas cultural heritage ornationalidentity,suchaspublishing,flm,video,musicand broadcasting,areadministeredbytheCulturalSectorInvest-ment Review of the Department of Canadian Heritage (Canadian Investing in net benets to CanadaBy Calvin Goldman, Jason Gudofsky and Aleksandra PetkovicBlakes, Cassels & GraydonThe current Canadian government is highly interested in increasing economic ties with China and expanding foreign investment in CanadaCANADA1617researchanddevelopmentinCanadabythe Canadian business and continued community involvement. Te precise scope of the under-takingsandtheirdurationaresubjectto negotiationbetweentheinvestorandthe Minister. According to guidelines established byInvestmentCanada,theseundertakings willbereviewedbyInvestmentCanadaona 12 to 18 month basis.State-owned enterprisesIn2007,InvestmentCanadareleased guidelinessettingoutsupplementarycon-siderationstoqualifythenetbeneftcriteria where the investor is an SOE. Pursuant to the Investmentbystate-ownedenterprisesNet beneftassessmentGuidelines(SOEGuide-lines),theMinisterwillexpectadditional undertakingsfromSOEinvestors.Inpar-ticular,theMinisterwillseekundertakings pertainingtothecorporategovernanceand reportingstructureoftheSOE,howandto what extent the SOE is owned and controlled by a foreign state, and whether the Canadian businesstobeacquiredwillhavetheability to continue operating on a commercial basis. Fromagovernanceperspective,theassess-ment will include whether the SOE adheres to Canadian standards of corporate governance, includingitscommitmentstotranspar-encyanddisclosure,independentmembers oftheboardofdirectors,independentaudit committees and equitable treatment of share-holders.Inaddition,InvestmentCanada willevaluatewhethertheSOEadheresto Canadianlawsandpractices,aswellasthe efectoftheinvestmentontheleveland natureofeconomicactivityinCanada, includingtheefectonemployment,pro-ductionandcapitallevelsinCanada.From acommercialorientationperspective,the MinisterwillassesswhethertheCanadian business to be acquired will continue to have theabilitytooperateonacommercialbasis with respect to: (i) where to export; (ii) where to process; (iii) the participation of Canadians initsoperationsinCanadaandelsewhere; (iv) the impact of the investment on produc-tivity and industrial efciency in Canada; (v) support of ongoing innovation,researchanddevelopmentand;(vi)theappropriate level of capital expenditures to maintain the Canadian business in a globally competitive position.Policy statement and revised SOE guidelinesOnDecember72012,theCanadiangovernmentreleaseda PolicyStatementandreviseditsSOEGuidelines,clarifyingthe foreigninvestmentreviewprocessinCanadaandsignalling ashifinhowinvestmentsbySOEswillbereviewedunderthe ICA.AmongvariousamendmentstotheSOEGuidelines,the government broadened the defnition of what may constitute an SOE to include an enterprise that is owned, controlled or infu-enced, directly or indirectly by a foreign government. Tis new defnition,namelytoincludetheterminfuence,introducesa potentially wide expansion to what may constitute an SOE.Te proposed amendments to the ICA that were announced onApril292013expandthedefnitionofwhatmayconstitute CALVIN S. GOLDMAN Q.C.PartnerCalvin S. Goldman Q.C. is co-chair of Blakes competition, antitrust and foreign investment group. He began his professional career at Blakes in 1976, after he clerked for Justice Spence of the Supreme Court of Canada. He remained with Blakes specialising in antitrust litigation until 1986, when he was appointed to be the Director (since renamed to Commissioner) of the Competition Bureau in the Canadian government. He returned to private practice in 1990. Cals practice covers all aspects of Canadian competition law, including domestic and international mergers, abuse of dominance, cartels, civil reviewable matters and counselling on trade practices, as well as representation in foreign investment reviews under the Investment Canada Act.JASON GUDOFSKYPartnerJason Gudofsky is a partner in Blakes competition, antitrust and foreign investment group. He advises domestic and foreign rms on all aspects of competition law. He regularly provides strategic advice to rms involved in merger and joint venture transactions, including providing risk assessments, navigating reviews through the Canadian Competition Bureau and, where appropriate, coordinating and working with economists and foreign counsel. In addition to advising on mergers, Jason provides advice on all other aspects of competition law, including in respect of strategic alliances, unilateral conduct, cartel investigations and compliance matters. He has been involved in the negotiation of complex remedies and orders with the Competition Bureau and before the Competition Tribunal in the context of both mergers and cartel investigations. Jason advises foreign and Canadian vendors under the Investment Canada Act and represents clients before the Investment Review Division of Industry Canada and the Cultural Sector Investment Review branch of Canadian Heritage. He has negotiated undertakings in a wide range of industries to secure net benet to Canada determinations.MICHAEL LAFFINPartnerMike Lafn is a partner in Blakes energy group and chair of Blakes Asia region practice. He provides strategic corporate and energy advice to Canadian and international oil and gas companies, and has extensive experience negotiating, structuring, advising, and opining on all aspects of conventional and unconventional oil and gas matters. He has in-depth knowledge of all aspects of the Canadian oil sands, LNG and marketing in Canada, midstream and infrastructure issues, petroleum and natural gas joint ventures and acquisition and divestment of assets and corporations. Mike has negotiated and supervised large-scale projects related to domestic, international and offshore transactions, joint ventures, take-over bids and nancings. He is very involved in resource and trade matters involving Asia.AUTHOR BIOGRAPHIESCANADA1819Inrecognitionofthepotentiallylengthyandcostlylitiga-tion process, on May 25 2012, the government issued Mediation Guidelines,introducingaformalmediationprocessasanalter-nativetolitigationwheretheMinisterbelievesthataninvestor hasfailedtocomplywithitscommitments.Teguidelines allowtheMinisterandtheinvestortoenterintoanagreement tomediateifbothpartiesbelievethatmediationmayassistin resolving a dispute relating to compliance with undertakings. Te Minister then may either accept new undertakings as a result of the mediation process, or demand that the investor comply with its prior commitments or justify non-compliance. If the investor fails to act in accordance with the Ministers demand, the Minister still may initiate court proceedings. Taken together, these changes refectashiftowardsgreatertransparencyandmoreefective enforcement under the ICA. Going forward All non-Canadian investors need to take into account the going-forwardcostsofadheringtoundertakingswhennegotiating agreements that are subject to approval under the ICA and factor thesecostsintotheeconomicsofthetransaction.Vendorsalso maynegotiateparticipationrightsinatransactionagreement toensurethatSOEinvestorsmakeappropriatecommitmentsto secure ICA approval.Investors that propose to acquire interests in Canadian busi-nessesinvolvedinsensitiveareas,suchasuraniumextraction, technology,orpossiblycriticalinfrastructure,mayfacescrutiny under the national security review provisions of the ICA, even if those interests are not controlling ones.Inaddition,andasdemonstratedbyrecenthigh-profle transactions(includingBHPBillitonsproposedacquisitionof PotashCorporationandLSEsproposedacquisitionofTMX), otherstakeholderscanplayaninfuentialroleinthenetbeneft determinationundertheICA.Teserecenttransactionsdem-onstratethatthereviewprocessundertheICAisgroundednot onlyinlegalconsiderationsbutalsoinpoliticalandeconomic considerations. Te investors advisory team needs to refect this dynamic.Additional considerations for SOE investorsTepoliticalconcernsoverSOEinvestmentinCanadaand elsewhere have been the result of a perceived lack of transparency ofSOEmotivationsanddoubtsastotheiraccountability standards,adherencetocorporateandinternationalnormsand anti-corruptionprotections.ConcernsaboutSOEinvestment continuetopersistinthemediaandsomeSOEsmightbe discouraged from investing in Canada due to the perception that the regulatory approval process will be challenging and complex.InvestmentCanadashouldbeexpectedtocontinuetoinsist that Chinese SOE investors commit to transparent corporate gov-ernance and a commercial orientation for the Canadian business forsolongastheyholdacontrollinginterestinaCanadian business,inadditiontothestandardundertakingsrelatedto employment, capital expenditures and other undertakings, ofen required of investors.Nevertheless,asrecentexperienceshows,theseconcerns canbeovercome.Awell-plannedgovernmentrelationsand communications strategy, coordinated by counsel working closely withthenon-Canadianinvestor,canmitigatethelikelihoodof atransactionbeingderailedforpoliticalreasons.Indeed,the importanceofawell-developedstrategicapproachtoobtaining appropriateapprovalscannotbeunderestimated,bothwhen promotingthetransactionandnegotiatingundertakings,and securing Ministerial approval.20212009 ICAICA WTO WTO 3.446105002013429ICASOE3.44SOESOEICAICA4530198545ICA 12 18 2007SOEInvestmentby state-ownedenterprisesNetbenefitassessmentGuidelinesSOESOESOESOESOESOE () 1976 Spence 1986 (Competition Bureau) 1990 (Investment Canada Act) (Competition Bureau) (Competition Tribunal) (Investment Canada Act) (LNG) 2223SOESOESOEGERMANYwww.chinal awandpracti ce.com CHI NA OUTBOUND I NVESTMENT GUI DE 2013 >>25GermanyhasthelargesteconomyinEuropeandisone theworldsleadingexportersofmerchandise,with exportsaccountingformorethanone-thirdofthe national output. Te economy in Germany is regulated by a legal framework that is highly efcient, cost-efective and predictable, withstatutorylaw,insteadofcaselaw,providingahigh-levelof legalcertainty.TeWorldEconomicForumsGlobalCompeti-tivenessReport2012-2013gaveGermanyatop-rankinginthe category of efciency of legal framework.Foreigninvestmenthaspeakedsincethefnancialcrisisin 2008and2009.TisisbecauseofGermanysbusinesseshaving shownremarkablestrength,evenduringtheEurocrisis.As themajorityoflargeGermanbusinessesareprivately-held, sometimesbyfoundersortheirfamilies,thesaleofthesebusi-nesses triggers a search for the best possible successor. In particular, Chinese investors have shown an unprecedented interestinowningGerman-basedbusinesses.Tisismainlyin thetraditionalautomotiveandmachineryindustries,resulting in some quite prominent and successful takeovers. But the chal-lengesforAsianandespeciallyChineseparticipantsinauction sales can prove rather intense.Share deal versus asset deal When investing in German companies, investors canchoosetobuysharesinacertaintarget companyoritsassets.Typically,sharedealsare seenmoreofen.Tisisbecauseassetdealsare morecomplicated,asanyassettobetransferred mustbespecifedintheagreement.Inaddition, thetransferofongoingcommercialagreementswithsuppliers andcustomersfromthesellertothepurchaserusuallyrequires consentoftheothercontractualparty.Tiscansometimeslead to the contractual party trying to renegotiate the terms and con-ditions of the concerned agreement. From a sellers perspective, a share deal is generally favourable from a tax perspective.Situations may occur though where it is better to buy assets, forexample,ifthetargetcompanyhasfledforinsolvencyorif the purchaser only wants to buy a certain business unit by way of spin-of. An asset deal may also be advantageous for the purchaser from a tax perspective due to a possible step-up.If the transaction is structured as an asset deal, the employees ofthebusinessunitconcernedareautomaticallytransferredto thepurchaserbyoperationoflaw.However,eachemployeeis allowed to object to the transfer.Sale and purchase agreementsCommercialagreementsunderGermanlawaresubstantially shorterthanAnglo-Saxon-typeagreements.Tisisbecausea large degree of the parties legal relations can be based on existing statutoryGermanlaw,bywhichtherelevantCodesprovide adequate solutions for many situations that typically occur.For the most part, this also applies to sale and purchase agree-ments (SPA) in the acquisition of shares, although in recent years the infuence of Anglo-Saxon legal culture has been considerable. However, comparatively short German-style documents continue toprevailinmanyequity-fnancedtransactionsandintransac-tions involving medium-sized German companies.Tese short German SPAs are possible since many key areas of corporate and contract law are already covered by comprehensive statutory laws. On issues like remedies for violation of warranties andthecalculationofdamagescausedbycontributorynegli-gence and delay, in general it is possible to rely on statutory law. Consequently, the wording of the contracts sometimes gives little guidance on practical handling issues since it is to be understood within the context of statutory law and general legal principles.TeuniversalstructureofGermanlawSPAsissimilarto standardsusedelsewhere.CoreelementsoftheSPAare,asin manyotherjurisdictions,thepurchasepriceandrespective adjustmentprocedures.Sincethesubprimedifcultiesin2007, netfnancialdebtandworkingcapitaladjustmentsasofthe closing date, have again become more frequent. So-called locked box mechanisms or agreements that provide for a fxed purchase pricethatisdeterminedbasedonpastfguresandnotsubject toadjustmentsarestillused.AsecondmajorpartofanSPA concernsrepresentationsandwarranties,whicharecomparable to those in other jurisdictions.A major deviation from Anglo-Saxon SPAs is the distinction between the sale and the transfer of shares (or assets), which are describedastwoseparatetransactions.Tesaleconstitutesonly the obligation to transfer the share while the transfer constitutes the actual transfer of ownership (in rem). Te transfer is usually subjecttotheclosingconditions,likeantitrustclearanceand payment of the purchase price. AnotherGermanpeculiarityisthatanyGermanlaw agreement involving the transfer of private limited liability shares or real property must be notarised. Tis means that the SPA itself andanyancillaryagreementandallannexes(otherthanlists M&A basics in GermanyBy Jens Hrmann and Otto HaberstockP+P Pllath + PartnersThe wording of the contracts sometimes give little guidance on practical handling issues since it is to be understood within the context of statutory law and general legal principlesGERMANY2627orfallingbelowcertainthresholdsin votingrights(namely3%,5%,10%,15%, 20%,25%,30%,50%or75%)anyinvestor mustnotifythecompanyandtheGerman fnancialsupervisoryauthority(Bundesan-staltfrDienstleistungsaufsichtorBaFin) withoutunduedelayandatthelatest,within fourtradingdays.Asimilarobligationalso appliestowarrantsorfnancialinstruments thatgiveanunconditionalrighttoacquire sharesinsuchcompanies.Votingrightsmay generallynotbeexercisedifthenotifcation requirement has not been complied with. Te suspension may last for six months if the noti-fcationwasomittedduetogrossnegligence or wilful misconduct.Anypurchaseroflistedsharesuptoor exceeding the threshold of 10% must disclose the objective of the purchase and the source of fnancing to the issuer within 20 trading days. Public tender ofers are exempt from this dis-closure, as well as purchases by investment companies regulated under the UCITS directive. Te issuer is then required to publish such disclosed information to the public.WhenacquiringsharesinAGsnotlistedonaregulated marketandwhichexceedathresholdofmorethan25%ofthe registeredsharecapital,thepurchasermustnotifythecompany and the company has to publish this notifcation.Nosimilarnotifcationrequirementsapplytopurchasesof shares or interest in companies of other legal types like GmbHs.Tender offerIfsharesintherelevantcompanyareadmittedfortradingon aregulatedmarket,publictenderoferscanbemadebywayof two main types of ofers, namely voluntary ofers and mandatory ofers. Voluntary ofers aimed at the acquisition of control over a companyarecalledtakeoverofers.Asopposedtoamandatory oferwhichmustbemadetoalloutsideshareholdersuponthe acquisition of control in any way, other than by a takeover bid. For example,controlcanbegainedthroughanof-marketpurchase ofshares(blocksale),purchasesfromthestockexchange,sub-scription in a capital increase, or a merger.Control is established by directly or indirectly holding 30% or more of the voting rights in the target AG. To determine whether the30%thresholdhasbeenmet,thevotingrightsdirectlyheld by a shareholder and certain voting rights imputed to it must be combined. For example, voting rights that are owned by a subsid-iary, or by a third party for the account of the shareholder, shall bedeemedasvotingrightsoftherelevantshareholder.Inpar-ticular, the voting rights of a third party with whom a shareholder coordinatesitsconductwithrespecttotheAGareimputedto theshareholder(actinginconcert).Coordinationbetweenthe shareholder and a third party shall be deemed to exist in cases in which they agree on the exercise of voting rights or otherwise act together with the purpose of afecting permanent and signifcant changes to the companys business approach.Oncethebidderhasdecidedtomakeatakeoveroferor oncethe30%controlthresholdhasbeenmet,thebiddermust immediatelypublishthedecisionorannouncethatthecontrol thresholdhasbeenmet.Asarule,thebidderthenhasaperiod offourweekstoprepareanoferdocumentcontainingthefull terms of the ofer and to submit the document to BaFin for veri-fcation.UponapprovalofthedocumentbyBaFin,thebidder mustimmediatelypublishtheofer.Teacceptanceperiodthat startswiththepublicationmaynotgenerallybelessthanfour weeksandnotmorethan10weeks.Incertaincases,theaccep-tance period extends by operation of law.Forbothvoluntaryandmandatoryofers,theconsideration to be ofered to all other shareholders must at least be equal to the higher of:the highest consideration that the bidder (or certain persons relatedtooractingtogetherwith)hasgrantedorpromised topayfortheacquisitionofshares,duringaperiodofsix months preceding publication of the ofer document; ortheweightedaveragedomesticstockmarketpricesofthe sharesduringthethreemonthperiodprecedingpublication ofthebiddersdecisiontomakeatakeoveroferorofthe bidders attainment of the 30% threshold.Teconsiderationmaybeadjustedtoahigherpriceifthe bidder(orcertainpersonsrelatedtooractingtogetherwith) acquires further shares. Tis can either be during the acceptance periodor,bywayofanof-markettransaction,withinoneyear aferthelapseoftheacceptanceperiodandforaconsideration exceeding the value of the consideration specifed in the ofer. An exception exists for the acquisition of shares in connection with a statutory obligation to grant compensation to shareholders of the target company.Takeoverofersandmandatoryofersbasicallyfollowthe samelegalregime.Animportantdeviation,however,isthat amandatoryofermaynotbemadesubjecttoconditions JENS HRMANNPartnerJens is a partner with P+P in Munich and specialises in M&A and private equity. In particular, he focuses on private equity transactions, joint ventures as well as capital markets law. Jens studied law in Konstanz, Germany.OTTO HABERSTOCKPartnerOtto is a partner with P+P in Munich. He focuses on M&A, private equity and venture capital transactions, as well as general corporate law and has advised private equity funds, corporations, entrepreneurs and management teams on many buy-out, investment, IPO or similar transactions. He is admitted to the bars in Munich and New York.AUTHOR BIOGRAPHIESGERMANY28292012-201320082009 --SPA2007- 1055,0006GmbH500500/2000AGJens Hrmann Otto HaberstockP+P Pllath + Partners303130% Bharucha & Partners was founded in March 2008 on immutable principles of professional ethics and excellence. M. P. Bharucha , Alka Bharucha , Justin Bharuchaand Vivek A. Vashi are the founding partners of the frm.Within a span of 3 years the frm has grown to 3 ofces in 2 cities with 7 partners and 38 associates. Our expertise in corporateandcommercialpracticewithmergersandacquisitions,bankingandfnance,litigation,arbitration, capital markets and fnancial regulation is well recognized and we count leading international and Indian corporate houses, banks, fnancial institutions and funds amongst our clients.Weadviseclientsondomesticaswellascross-bordermergersandacquisitionshavingadvisedbothbuyandsell sidesontransactionsstructuredasprivatearrangementsorbiddingprocessesinvolvinglistedandunlisted corporates in diverse industries.Bharucha&Partnersofersablendofrich experience,creativityandtheenergyofyouth. Each partner has a proven track record of handling complex commercial transactions or disputes. Each associatehasbeenindividuallygroomedor selectedassharingthequalitiesandvisionofthe partners. Some of our most recent accolades are: Highly recommended firm incorporate / M& A Chambers Asia- PacificAsias Leading Lawyers forBusiness - 2011Mergers & AcquisitionsCorporate RestructuringJoint VenturesPrivate EquityBankingStructured FinanceProjects and Project financeCapital MarketsLitigationInternational and Domestic ArbitrationIntellectual PropertyTelecomsInformation TechnologyReal EstateEmployment LawsFinancial RegulationEmail: sr.partner@bharucha.inwww.bharucha.inCecil Court, 4th floor, M. K. BhushanMarg ColabaMumbai 400 039. India Tel: +91 22 2289 9300Fax: +91 22 2282 3900Hague Building, 9, S.S. Ram Gulam MargBallard Estate, Mumbai 400 001. IndiaTel:+9122 6132 3900Fax: +91 22 6633 3900Enkay House, 4/48 Malcha Marg S. C.Diplomatic Enclave, New Delhi 110 021. IndiaTel: +91 11 45939300Fax: +91 11 4593 9399I NDIAwww.chinal awandpracti ce.com CHI NA OUTBOUND I NVESTMENT GUI DE 2013 >>33Duringthelastdecade,ChinahasemergedasIndias largesttradingpartner,withUS$75billioninbilateral tradeforthefnancialyearendedMarch312012and US$40 billion trade defcit in Chinas favour.Paradoxically,ChineseforeigndirectinvestmentinIndia iscomparativelysmallatUS$239millionfromApril2000to November 2012, especially when compared to investments made byotherAsiancountries.Forexample,JapaninvestedUS$13 billion during the same period.Opportunitiesexisttocorrectthisimbalance.Withthe changingenvironmentandlabourdemographicinChina,there are considerable incentives for manufacturers to set up centres in India,withreducedlabourcosts.Indiaalsoestimatestospend US$1trilliononinfrastructuredevelopmentoverthenextfve years, creating many avenues for Chinese companies to invest in and increase trade with India. Te two countries are also working together to ensure greater Chinese investment in India to correct the trade defcit. SomeChinesecompanieshavealreadyestablishedanIndia presenceandarelookingtocapitaliseontheopportunitiesthe country has to ofer. Huawei, the Chinese telecom equipmentmaker,willinvestUS$2billionin Indiaoverthenextfouryears,whichincludes settingupanR&Dcentre.Chinesecompanies are already implementing highway projects worth overUS$2.5billionandthisissettoincrease three-fold over the next few years. ChineseinvestmentsinIndiaaretreated thesameasinvestmentsfromothercountries. Insectorslikepower,telecommunicationsandinfrastructure, which have implications on national security, foreign investment issubjecttoahigherdegreeofscrutinyandthisappliesequally toanyChineseinvestmentinthesesectors.Alotofhistorical adverseperceptiononChineseinvestmentfallsintothisspace, but opportunities subsist and have increased.Establishing an India presence ForeigninvestorscanestablishanIndianpresencebysettingup a branch ofce or incorporating a company. Te decision will be based on the specifcs of the proposed business in India. Branch or liaison ofceA branch or liaison ofce can be opened in India only with prior approval from the Reserve Bank of India (RBI), unless it is estab-lishedinaspecialeconomiczonetocarryoutmanufacturing orserviceactivities.Itisnotpossibletocarryonafully-fedged business with a branch ofce, as only certain activities prescribed bytheRBIarepermitted.Also,onlyonebranchofcecanbe openedineachzoneofthecountry.Indiaisdividedintofour zones, namely north, south, east and west.Aforeigninvestormayalsoopenaprojectofceifithas securedacontractfromanIndiancompanytocarryouta projectinIndia,providedthatexecutionoftheprojectmeets theprescribedcriteria.Tisisanofceattheprojectsiteandis appropriate if the business in India is limited to executing infra-structureprojects.Aprojectofcecannotconductmarketing activities nor engage in any other business development.Investing in a companyA foreign investor may also enter India by directly investing into anexistingcompanyorbyincorporatinganewcompany,efec-tively foreign direct investment. TeWorldBankGroupinitsDoingBusinessReport2013 rankedIndia173outof185economiesinrespectofeaseof startingabusiness.Astherankingsuggests,theprocessof incorporatingacompanycanbecumbersome.Tisisparticu-larlytrueincaseswherethecompanyisincorporatedwithonly foreigninvestors.Forthisreason,companiesareofenincorpo-rated by Indian nationals and subsequently transferred to foreign investors. Te transfer can be made at par so that it is tax neutral for all parties concerned.Foreign direct investment Foreigndirectinvestment(FDI)isadministeredbytheRBIand theIndiangovernment.Tegovernmentactsthroughvarious departmentsincludingtheDepartmentofIndustrialPolicyand Promotion(DIPP),whichformulatespolicyonforeigndirect investment (FDI Policy). Te FDI Policy prescribes inter alia the percentageofinvestmentpossibleineachsector,specifccon-ditionstowhichtheforeigninvestmentissubjectandwhether priorgovernmentapprovalisrequired.Tisisreferredtoasthe approval route or when not applicable the automatic route, which applies equally to external commercial borrowings. Foreigninvestmentupto100%oftheIndiancompanyis permittedinmanysectorsandinsectorswhereforeigninvest-mentiscapped,liketelecommunicationsandinsurance,prior permission of the FIPB is required to invest in excess of that cap. Investing in India: Opportunities and pitfallsBy Justin Bharucha and Donnie Dominic GeorgeBharucha & PartnersIndia also estimates to spend US$1 trillion on infrastructure development over the next ve years, creating many avenues for Chinese companies to invest in and increase trade with IndiaI NDIA3435ormodernisingandexpandinganexistingplant,creatingreal physical assets in the hotel, hospital, and sofware businesses, and most importantly, funding infrastructure projects. ECBs cannot be raised for investment in the real estate sector norforworkingcapital,generalcorporatefnanceorrepayment of existing Indian rupee-denominated credit facilities.Chinese banks hold a signifcant ECB portfolio. For example, ChinaDevelopmentBankhasadvancedfacilitiesforoverUS$2 billion to Reliance Communications.Complying with Indian law CompaniesinIndiaareregulatedbyboththeCentral(federal) and the State (provincial) governments. Over the past few years, foreign investors in India have been afected by the aggressive positions taken by the Indian Revenue. TeissuefrstarosewithVodafonesacquisition ofthecompanythatistodayVodafoneIndia. TisUS$11.2billiontransactionwasstructured ofshore,wherethevendorandthepurchaser were both foreign investors. However, the Indian Revenuesoughttoassessthetransactionto income tax in India. When this levy was rejected bytheSupremeCourtofIndia,theIndian RevenuepersuadedthegovernmenttoamendtheIncomeTax Act to assess such transaction to tax with retrospective efect from 1962, when the present act was brought on the statute book.Sincethen,theIndianRevenuehasconsistentlysignalled itsaggressiveposition,mostrecentlybyraisingaclaimofUS$1 billionwithrespecttoanequityinfusioninShellIndiabyShell Gasin2008.ShellGasinvestedINR10/-persharewhilethe Indian Revenue assessed the value of each share at INR183/- and accordingly raised a claim which is presently being challenged. Employee legislation in India is cumbersome and compliance is a big issue, especially for labour intensive businesses engaged in manufacturing or infrastructure. Labour in India is highly politi-cised,whichcomplicatesmattersfurtherandlowmobilityof labour and difculties in relocating facilities are common issues. Nonetheless,aconcertedeforttostreamlineexistinglabour laws is underway and hopefully the changes will become apparent in the near future.Environmentprotectionisanincreasinglyimportantissue and every foreign investor must ensure that the Indian company inquestioncomplieswithapplicablelaw.Tisisincreasingly importantintheIndiancontextasinadequatecompliancecan have adverse consequences. Indiaoferstremendousopportunitiesforforeigninvestors and is actively seeking foreign investment in areas where Chinese businesses hold a market-leading advantage. However, the impor-tance of carefully structuring an investment to be tax efcient and compliantwithIndianlawcannotbeoveremphasised.Chinese investment into India should ensure that these issues are consid-ered at inception before actually remitting capital to India.Companies are often incorporated by Indian nationals and subsequently transferred to foreign investors3637(SEBI)10%24%24% () () () () (ECBs) 7.520Reliance Communications () () (IndianRevenue)VodafoneVodafone112(IncomeTaxAct)1962 () 2008(ShellGas)(ShellIndia)10INR10/-INR183/-JUSTIN BHARUCHA DONNIE DOMINIC GEORGEJustin BharuchaDonnie Dominic GeorgeBharucha & PartnersJustinDonnie () JustinDonnieReliance Communicationsthe leading business law rmin LuxembourgHong Kong Representative OfceSuites 1601 - 1603, 16th Floor, Jardine House1 Connaught Place, Central, Hong KongTel: (852) 2801 5808morethan290legalexpertsofferingsolutionstothemost challenginglegalissuesacrossallareasofLuxembourg business law LUXEMBOURGwww.chinal awandpracti ce.com CHI NA OUTBOUND I NVESTMENT GUI DE 2013 >>39020004000600080001000012000140001600005001000150020002500300090 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Feb 13FundsUnits Net assets billions No. of funds/units050000100000150000200000250000300000Luxembourgisarathersmallcountrysurroundedby Belgium,FranceandGermany.AttheheartofEurope, Luxembourg has taken advantage of its position to rapidly developintoamajorEuropeanfnancialcentre,thankstoits fexible and secure legal and regulatory environment, an interest-ingtaxregimeincludingabroadnetworkofdoubletaxation treatiesandaninternational,specialisedandmultilingual workforce.Overtheyears,thesefeatureshaveattractedmorethan 140internationalbanksincludingBankofChina(BOC)and IndustrialandCommercialBankofChina(ICBC),whichhave settledaroundthecentreofthe1000-year-oldformerfortress. Fundsponsors,includingChinaAssetManagementCompany andotherwell-knownChineseassetmanagers,havealsobeen attractedbyLuxembourginvestmentfundsandhavecreated morethan3,800investmentfunds,representingapproximately 2,359billion(US$3,188billion)todistributetheirstrategiesto Europeaninvestors.Luxembourgisthefrstlocationforinvest-mentfundsdistributedonacross-borderbasis.Seefgure1for thenumberoffundsresidentinLuxembourgandassetsunder management. In addition, a number of multinational companies, including Huawei and SAIC, have decided to use Luxembourg as their gateway to Europe and its single market.Tis article aims at introducing the reader to the main oppor-tunitiesavailabletoChineseinvestorsandentrepreneursto structuretheirglobalorEuropeanstrategiesusingLuxembourg. ItwillsummarisewhyLuxembourgisselectedforitsproducts, servicesandlegalsolutionsandwhyitisincreasinglyconsid-ered by Chinese companies, fund sponsors, service providers and legaladvisersaspartoftheirplanstodeveloporinvestoutside mainland China, access new markets, in particular the European market and reach new investors on a global basis.UCITS the best solution for retail fundsUndertakingforCollectiveInvestmentinTransferableSecurities (UCITS)istheretailfundvehicledistributedonapan-European basis,usingaEuropeanpassport.MostLuxembourgUCITSare setupbyforeignsponsorsinordertobemarketedtoEuropean investors and on a worldwide basis. See fgure 2 for an overview of the origin of promoters of Luxembourg funds. Unlike local fund structures or funds setup in ofshore centres liketheCaymanIslandsortheBritishVirginIslands(BVI), LuxembourgUCITSarewidelyacceptedbyalargenumberof investorsanddistributorsnotonlyinEurope,butalsointhe Middle East, South America and Asia, where they represent a sig-nifcant portion of funds distributed.Luxembourg: The gateway to EuropeBy Stphane KarolczukArendt & MedernachFigure 1: Funds resident in Luxembourg and assets under management(Source: ALFI/CSSF 2013)LUXEMBOURG4041jurisdictionsand(ii)fundswillhavetocomplywithcertain requirements,whichwillbetechnicallyandlegallychallenging fortraditionalofshorefundssuchasCaymanIslandsfundsor BVI funds.AIFMswillreceiveapassportallowingforpan-European marketingofinvestmentvehiclescomplyingwiththeAIFMD. Tis passport will create unprecedented opportunities for Chinese asset managers to access the European market. It is expected that Luxembourg will take advantage of its expertise in UCITS funds and its existing fund servicing infrastructure to service new AIFs and AIFMs under the AIFMD and thus strengthen its reputation as the gateway to Europe. Tax aspectsBesidesinvestmentfunds,Luxembourgiswidelyusedasa middle jurisdiction for tax optimisation purposes. One important questionChinesecompaniesshouldconsideriswhetheranew investmentshouldbemadedirectlyfromChinaorwhetherit would be more efcient to use Luxembourg as an entry point to Europe.TeuseofLuxembourgasaholdingcompanylocation mayofersubstantialtaxadvantagestoChinesecompanies makingoutboundinvestments.Luxembourghaslongbeenrec-ognised as a prime location for setting up holding companies. Te well-known socit de participations fnancires (SOPARFI) refers toordinary,unregulated,fully-taxableLuxembourgresident companies whose main activity is the holding of shares benefting from the participation exemption.From a tax perspective, a SOPARFI is subject to the common taxsysteminLuxembourg.SinceSOPARFIsaretaxresidents subjecttocorporateincometaxes,theybeneftfromLuxem-bourgsdoubletaxtreatynetwork,aswellasfromtheEuropean Directives, including the EU Parent-Subsidiary Directive.Te main advantages of using a Luxembourg SOPARFI as an intermediate holding company may be summarised as follows:Luxembourg has entered into 64 compre-hensivedoubletaxtreatiesbasedonthe OECDmodeltaxconventiononincome and capital in order to avoid or reduce the domesticwithholdingtaxesandtherisks of double taxation. IntheAsianmarket,Luxembourgis activelybuildingrelationshipswith11 double tax treaties entered into with various Asiancountriesorregions(includingthe PRC,theHongKongSpecialAdminis-trativeRegion,India,Indonesia,Japan, Malaysia,Mongolia,Singapore,South Korea, Tailand and Vietnam).By virtue of the European Directives (the EU Parent-Subsidiary Directive relative to dividendpaymentsandtheEUInterest andRoyaltyDirective),dividend,interest androyaltypaymentsmadebyanEU companytoaLuxembourgSOPARFIare fullyexemptfromdomesticwithholding tax, under certain conditions. Terearenooronlylowtaxesuponexitandrepatriationof proceeds to investors. Luxembourg does not levy withholding taxonliquidationproceedsoroninterestpaidbyaLux-embourgSOPARFItoitscorporationshareholders.Profts distributed to corporation shareholders are generally exempt fromdividendwithholdingtaxunderLuxembourglaw (subjecttocertainconditions)andthetaxtreatyconcluded between Luxembourg and Hong Kong.LuxembourgSOPARFIscanbeneftfromtheparticipation exemption, which fully exempts dividend income, liquidation proceedsandcapitalgainsrealisedonthedisposalofshares totheextentthatcertainconditionsarefulflled.Qualifed shareholdingsineligiblesubsidiariesarealsoexemptfrom net worth tax and losses realised on the disposal of shares and are always deductible. In comparison with foreign participa-tion exemption regimes, the Luxembourg regime is generally acknowledged to have less stringent conditions. Luxembourg domestic tax laws further provide for an attrac-tiveintellectualproperty(IP)regimewithexemptionsofup to80%ontheincomeandgainsgeneratedbyIPrightsand no withholding tax on royalty payments whatever the benef-ciary of the income may be.Tere is no capital duty on capital contributions and no con-trolled foreign corporation rules in Luxembourg. A Double Tax Treaty (DTT) between Hong Kong and Luxem-bourg allows a tax efcient repatriation of profts and cash from Europe,viaLuxembourg,toHongKongandChina,without incurring additional tax costs. OneofthemainbeneftsoftheDTTisthepossibilityfora Luxembourg company to distribute dividends to the Hong Kong parentcompanyfreeofwithholdingtax.Inparticular,provided thattheHongKongcompanyholdsatleast10%oftheshare capital in the Luxembourg company or has invested at least 1.2 million in the acquisition of shares in the Luxembourg company, STPHANE KAROLCZUKHead of Hong Kong ofceStphane Karolczuk is head of Arendt & Medernachs representative ofce in Hong Kong, where he advises clients based in the Asia Pacic region regarding their Luxembourg legal and regulatory questions. As a senior associate of the investment funds practice, Stphane also advises international clients on all issues relating to investment funds, such as the structuring, registration, marketing, public offering and listing of Luxembourg and foreign investment funds. He also advises and assists clients in relation to the selection and setting-up of investment structures, drafting of contractual and marketing documentation, and liaises with the Luxembourg nancial regulator, the Commission de Surveillance du Secteur Financier (CSSF) and the Luxembourg Stock Exchange in relation to such matters. From September 2007 to January 2009, Stphane was seconded to Arendt & Medernachs representative ofce in New York in view of developing an investment management helpdesk advising US clients in relation to Luxembourg investment funds questions. He has been permanently based in Hong Kong since September 2009.Stphane graduated from the University of Brussels (Belgium) and the University of Ghent (Belgium). He is admitted to practice in Hong Kong as registered foreign lawyer, as well as in Luxembourg and Brussels.AUTHOR BIOGRAPHYLUXEMBOURG4243Similarly, the Family Wealth Management Company (SPF) is an investment company dedicated to the management of private wealthforindividualsandintermediaryvehiclesactingexclu-sively for the management of the private assets of an individual or a group of individuals. Lifeinsuranceproductsarealsousedtotransferownership oftheassetsunderlyingthepolicytotheinsurancecompany. Insurance products beneft from tax advantages, a favourable tax treatment and from broad international tax recognition. For listings, the Luxembourg Stock Exchange (LuxSE) is today theprincipalcentreforthelistingofinternationalsecurities.It currentlylistsaround45,000securities,outofwhich30,000 bondsrepresent42%ofthetotalinternationalbondslistedon EU markets. Tis makes LuxSE the frst listing venue for interna-tional bonds. Overtheyears,theLuxembourgfnanceindustryhas developed a broad range of fnancial products, services and legal solutions for banks, fnancial service providers, fund sponsors and multinational companies. Tis has resulted in them ofen selecting LuxembourgastheirgatewaytoEuropeandintensivelyusing Luxembourg investment vehicles to reach investors worldwide.With the opening of the Chinese economy, opportunities are becoming more available to Chinese companies or fund sponsors wishingtostructureoutboundinvestmentsofChinesecapital orsetupinvestmentstructuresmarketabletotherestofthe world.44>57Singaporeisanislandcity-statelocatedneartheequator at the southern tip of the Malay Peninsula. As a member of the Association of Southeast Asian Nations (ASEAN), itisarguablythemoststrategicallyimportantSouth-EastAsian nexus for global trading, fnance and services.Despiteitssize,Singaporehasconsistentlybeenrankedfrst eachyearfrom2009to2012astheworldseasiestplacetodo businessbytheWorldBankGroupReportanditisextremely successfulinattractingforeigninvestment.Accordingtostatis-tics from the Foreign Equity Investment in Singapore 2010 issued by the Department of Statistics of Singapore, Singapores stock of foreignequityinvestmentincreasedtoS$613.5billionasatthe endof2010.Inadditiontoitsstrategiclocation,excellentrepu-tation,goodnetworkandinfrastructure,sophisticatedbanking system and diversifed population, the Singapore legal system also plays an important role in attracting foreign investment. Foreign investors need to consider the business vehicles Singapore has to ofer and the general legal issues when acquiring an existing company before investing in the city-state.Business vehiclesTerearevariousbusinessvehicleswhichmay besetupinSingaporebyforeigninvestors.A companyisthemostcommonlyusedone.All companies must be registered with the Account-ingandCorporateRegulatoryAuthority(ACRA)andmaybe private or public. Temostimportantdiferencebetweenaprivatecompany andapubliccompanyisthatapubliccompanymayraise fundsfromgeneralpublicwhileaprivatecompanymaynot.A companyisalegalentityseparateanddistinctfromitsshare-holdersanddirectors,withitsmembershavinglimitedliability. UndertheCompaniesAct(CA),acompanymusthaveatleast oneshareholderandatleastonedirectorwhoisanadultordi-narily resident in Singapore. To be ordinarily resident, the person mustbeaSingaporecitizen,aSingaporepermanentresident, oraforeignerholdinganEntrePassoremploymentpass(both available by applying to the Ministry of Manpower) and residing in Singapore. Tere is no minimum paid-up capital requirement and a company can be registered with a minimum of S$1. Tebusinessoperationandmanagementofacompanyis vestedinitsboardofdirectors:executivedirectorstakecareof the daily operations of the company and non-executive directors overseetheafairsandcorporategovernanceofthecompany butarenotinvolvedinitsdailyoperations.Everycompany mustappointanauditorwithinthreemonthsfromthedateof its incorporation unless it is exempted from audit requirements. Itmustalsoappointalocallyresidentcompanysecretary,who must not be the sole director of the company and who must meet variousotherprescribedrequirements,withinsixmonthsof incorporation. Tereisgenerallynospecialapprovalrequiredformost businessactivitiesinSingapore.However,certaintypesof businessactivitiesarecontrolledbygovernmentagenciesand willrequirethenecessaryapprovalsandlicensingbeforecom-mencing business. Banking and other fnance-related businesses, forexample,requireapprovalfromtheMonetaryAuthorityof Singapore (MAS). Other activities like international air transport, telecommunications, the production of cigarettes, beer, refrigera-torsandair-conditioners,andtheoperationofrestaurants,bars and casinos require a licence from other government bodies.Otherbusinessvehiclesavailable,althoughlesspopularfor foreign investment, are:A branch of a foreign companyTismayberegisteredwiththeACRAbytheforeigncompany. As it is not a legal entity separate from the parent, any liabilities or obligations which arise against it in Singapore may be enforced againstalltheassetsoftheparentcompany.Abranchdoesnot have its own shares nor board of directors. Te parent company must appoint two or more persons resident in Singapore to be its agentsandtoacceptonitsbehalfserviceofprocessandnotices requiredtobeservedonthecompany.Teparentcompanyis alsounderanobligationtoupdatetheCompaniesRegistrarof changes in its agents, registered address and certain other details. It must also fle its annual report and the audited accounts of its Singaporebranchwithintwomonthsaferitsannualgeneral meetingorwithinsevenmonthsfromtheendofitsfnancial year.Variousothercorporaterecordsandflingsmustalsobe maintained with the ACRA.Investing in Singapore: Business vehicles and M&ABy Joseph He Jun and Gerry GanWongPartnershipForeign investors need to consider the business vehicles Singapore has to offer and the general legal issues when acquiring an existing company before investing in the city-stateSI NGAPORE5859listingoftheirequitysecuritiesontheSingaporeExchange Securities Trading Limited (SGX-ST). Where possible and appro-priate, acquirers of Singapore unlisted public companies with 50 or more shareholders and with net tangible assets of S$5 million or more should also comply. UndertheCode,apersonacquiringsharesinapublic company must make a general ofer to purchase all the shares in the company under the following circumstances: If they (and any parties acting in concert with them) acquires sharescarrying30%ormoreofthevotingrightsinthe company; orIfthey(andanypartiesactinginconcertwiththem)holds atleast30%butnomorethan50%ofthevotingrightsofa companyandacquiressuchadditionalsharesthattheirper-centage of the voting rights increases by more than 1% in any six-month period.A person may also make a voluntary ofer to purchase all the sharesofthecompany.UndertheCode,suchanofermustbe conditionalonaminimumlevelofacceptancebeingachieved: the acceptances must result in the bidder (and any parties acting in concert with it) holding more than 50% of the voting rights in the target company. Ingeneral,apersonmaynotmakeanofertoacquireonly partofthesharesinapubliccompanyexceptwiththeprior consentoftheSIC.TeSICwillnotgrantconsentifthepartial ofer would result in the bidder and the parties acting in concert with them holding between 30% and 50% of the voting rights of the target company. Other key legal instruments which the acquirer has to comply with are: SGX-STListingRules:Wherethebidderislistedonthe SGX-ST,itmustseektheapprovalofitsshareholdersforan acquisitionthatexceedscertainthresholdsorifitisofering itsownsharesasconsiderationfortheofer.Ifitintendsto seekade-listingofthetarget,areasonableexitalternative, whichshouldnormallybeincash,shouldbeoferedtothe targets shareholders.CA:Certainprovisionsapplytotakeoverofers,likethose relatingtoshareholdingreportingrequirementsduring stake-building.Pleasenotethatwhereatakeoveroferis made for a Singapore company and acceptances are received inrespectof90%ormoreofthesharestowhichtheofer relateswithinfourmonthsofmakingtheofer,thebidder maycompulsorilyacquirethesharesofthenon-accepting shareholders.SFA:InsidertradingprovisionsintheSFArestrictthecom-municationtoathirdpartyofmaterial,price-sensitive information which is not generally available, where the third party is likely to deal in the securities. Tey also prohibit the dealingsorprocurementofotherstodealinthesesecuri-ties. It is also an ofence under the SFA for a person to make a takeover ofer if he has no intention to make an ofer, or has noreasonableorprobablegroundsforbelievingthathewill be able to perform his obligations in the ofer. Acquiring a private company Teacquisitionofsharesinaprivatecompanygenerallystarts with a short document (which may be called a heads of agreement, termsheet,letterofintent,ormemorandumofunderstanding) generallyprovidedtobesubjecttocontractordefnitiveagree-mentsandisnotbinding,exceptforclauseslikeconfdentiality, governing law, dispute resolution, costs and fees, and exclusivity. Parties may also build in additional binding clauses like no-shop, lock-out, and break fee to mitigate the risks of a party pulling out ofthenegotiationswithoutgoodcause.Followingasuccessful negotiation, a private written share sale and purchase agreement betweenthesellerandthepurchaser(wherenecessary,witha covenator and guarantor) setting out the detailed termsandconditionsgoverningthepre-and post-completionobligationsofthepartieswill besigned.Forsharetransferpurpose,ashare transfer form signed by the seller will be delivered to the purchaser as a key completion deliverable.Other methods Aninvestormayalsosubscribefornewlyissuedvotingshares inaprivatecompanyunderasharesubscriptionagreement signedwiththetargetcompanyandtheexistingshareholders. Te investor gains control over the target company if its resultant shareholdinginthetargetaccountsformorethan50%ofits entireissuedvotingsharecapital,withtheexistingshareholders being diluted.Other less common methods of acquiring a company are: A scheme of arrangement: Tis is a statutory procedure under the CA for restructuring a company. Te arrangement must be approved by a majority (in number) of shareholders holding atleast75%(invalue)oftheshareholdersorclassofshare-holderspresentandvotinginageneralmeeting,andonce approved,sanctionedbytheHighCourt.Oncesanctioned, it binds all the shareholders (including dissenting sharehold-ers). Where the target is a public company, the Code will also apply. Astatutoryamalgamation:UndertheCA,twoormore companiesmayamalgamateandcontinueasonecompany. Te amalgamation must be approved by special resolutions of the shareholders of the amalgamating companies. An amalga-mationproposalmustbepreparedandthedirectorsofeach amalgamatingcompanymustmakesolvencystatementsin relation to the amalgamating and amalgamated companies. If a public company is involved, the Code must also be complied with. Other regulatory requirementsSection54oftheSingaporeCompetitionActprohibitsmergers and acquisitions which have resulted, or may be expected to result, There is generally no special approval required for most business activities in SingaporeSI NGAPORE6061(ASEAN)20092012201020106,135 ()120 6263545430120545%12%20%5%5%5%12%12% 30% 3CNBC2004552010688.1 Homburger provides high quality legal advice andrepresentation both domestically and internationallyin signifcant transactions, disputes and complexlegal matters to businesses and entrepreneurs.Corporate | M&A Financial ServicesLitigation | ArbitrationIP | ITCompetitionTaxEmployment LawPrivate ClientsRestructuring | Insolvency White Collar | InvestigationsInsuranceHomburger AGPrime TowerHardstrasse 201 | CH-8005 ZurichP.O. Box 314 | CH-8037 ZurichT+41 43 222 10 00F+41 43 222 15 00www.homburger.chlawyers@homburger.chTransactions,Disputes, AdviceHomburger_Imageinserat_210x285mm_001_CLP.indd 1 14.02.13 17:59SWITZERLANDwww.chinal awandpracti ce.com CHI NA OUTBOUND I NVESTMENT GUI DE 2013 >>651)WhyshouldChinesebusinessesbeinterestedin Switzerland? Switzerland was among the frst non-communist countries to recognise the Peoples Republic of China in early 1950. Swiss companies have been among the frst to invest in China. Te twocountriesjustreachedagreementonthecontentofa bilateral Free Trade Agreement.Internal stability, external neutrality and tradition of govern-ment non-interference.Independence (not part of the European Union), open market and own currency (Swiss Franc).Traditionofsuccessfulcompaniesandentrepreneurship combinedwithinnovation,top-notchtechnologyand developed fnancial services.Business friendly and reliant civil law system with economic freedom and freedom of contract. Chinese civil law has partly been based on German and Swiss law.Swisslawisofenusedasaneutral,predictableandfexible law for international contracts with or without a Swiss angle. It is the number one substantive law in ICC arbitrations.Transparentlegislationwithnooverregulationofbusiness and markets.Cooperative authorities and no corruption.Reasonable tax rates.Excellent education and fexible labour market.Highly-developed place of arbitration and litigation.Numerous small and large companies from all over the world, including China, the US, the EU, Japan, Russia, India, middle East,LatinAmericaandAfricainvestorlistinSwitzerland, acquireSwisscompanies,useSwisslawforinternational agreements or choose Switzerland as a hub for their interna-tional activities or for dispute resolution.2) To what extent is foreign involvement in M&A trans-actions in Switzerland regulated or restricted?Tere are no general restrictions on capital transactions between Switzerlandandforeigninvestorsthatwouldallowgovernmen-talagenciestoinfuenceorrestrictthecompletionofbusiness combinationsorotherM&Atransactions.However,thereare industry-specifcregulationsandapprovalrequirements(see question 8).Consideringrealestate,theFederalActontheAcquisition ofRealEstatebyPersonsAbroadrestrictstheacquisitionbya foreignpersonoraforeign-controlledcompanyofnon-com-mercialrealestateinSwitzerland.Teacquisitionofsharesina companywhosestatutoryorfactualbusinesspurposeistrading innon-commercialrealestateisalsosubjecttoapproval,except for listed companies.3) What investment options are available to prospec-tiveforeigninvestorsandacquirersofcompaniesin Switzerland? ChineseinvestorscaninvestinorthroughaSwissoraforeign companywithoutanyparticularrestrictions.IntermsofSwiss legalentities,themostcommonSwisslegalformsaretheAG (Aktiengesellschaf:stockcorporation)andtheGmbH(Gesell-schafmitbeschrnkterHafung:limitedliabilitycompany).No governmentapprovalisrequiredfortheformationofaSwiss company.Te stock corporation is a legal entity with one or more share-holders (physical persons, partnerships or legal entities), and aminimumsharecapitalofCHF100,000,ofwhichatleast CHF50,000mustbepaidup.Itmustberegisteredinthe commercialregisterofitsdomicile,whichdoesnotlistthe shareholders of the corporation or their respective holdings in thecorporation.Fundamentaldecisionsrequireapprovalby the shareholders meeting. Management is carried out by the boardofdirectorsormanagement.Terearenocitizenship requirementsforshareholdersortheboardormanagement. At least one person with residence in Switzerland must have the power to bindingly represent the corporation. Telimitedliabilitycompanyisalegalentitywithoneor moremembers(physicalpersons,partnershipsorlegal entities),andaminimumnominalcapitalofCHF20,000.It must be registered in the commercial register of its domicile, whichliststhemembersandtheirquotainthecompany. Te company acts through the members meeting, which can delegatemanagementtomanagers.Atleastonepersonwith residenceinSwitzerlandmusthavethepowertobindingly represent the company.Acquisitions: Prospective Chinese acquirers may acquire a Swiss business or parts thereof by purchasing the shares of a company (share deal), by purchasing all or specifc assets (asset deal), by a statutorymerger,orinthecaseoflistedcompanies,byapublic ofer for the shares (public takeover).Co-investments: In case of venture capital and other direct invest-menttransactions,ofen,severalinvestorsmayjoinforcesfor theinvestmentandtogovernthecompany.Forthispurpose,the articles of incorporation and a shareholders agreement provide for Reliability and neutrality: Investing in SwitzerlandBy Dieter Gericke, Felix Dasser, Marcel Dietrich, Gregor Bhler and Reto HeubergerHomburgerSWITZERLAND6667acceptedthresholdsare10%ofEBITDA,5%ofturnoveror 10% of the targets net asset value.Abidderrequiredtosubmitamandatoryofercannotmake that ofer subject to conditions, other than conditions required to comply with regulations, aiming at registration with voting rights or protecting the economic substance (crown jewels) of the target. Funding commitments: Funding must be in place before the ofer is announced. Te bidder can make a formal pre-announcement oftheoferbeforeithascommittedfunding.Teactualofer mustcontaindetailsofthesourcesoffnancingandconfrma-tionbytheindependentreviewbodythatfnancingisavailable. Te certain funds requirement imposes restrictions on permitted conditions of the fnancing commitment. 7) To what extent have material adverse change (MAC) clauses become more important in light of the current economic climate?TeSwisseconomyandSwisscompanieshavenotbeenas severelyafectedbythefnancialcrisisasotherWesternjuris-dictions.Rather,businessesheadquarteredinSwitzerlanddo, anddidthroughoutthecrisis,fairlywell.SinceSwitzerlandhas, withtheSwissFranc,itsown,traditionallystablecurrency,the Euro crisis had limited efects on the economic climate for Swiss companies, except that exports are afected by weak foreign cur-rencies. Companies typically hedge against exchange rate risks.Nevertheless,thefnancialcrisishasledtomorecarve-outs fromMACconditionsforadverseefectsthataretheresultof generalmarketconditionsandthefnancingenvironment.In addition,commitmentlettersthatsecurethefnancingofan acquisitionhavebecomecommonalsoinprivateacquisitions and more ofen allow the seller to rely on such commitment.8) Which regulated nancial industries have maximum foreign ownership thresholds?Tereisnolimitationonforeignownershipinthefnancial industry.However,ownersoracquirersofimportantstakesin fnancialinstitutionsaresubjecttoscrutinyastoreputation, complianceandsoundbusinessconduct,andfnancialinstitu-tions under foreign control may require a special licence. Banks and securities dealers: All banks or securities dealers incor-porated or having a place of business in Switzerland must have a FINMA licence before starting operations. Qualifying sharehold-ers, like persons or entities owning directly or indirectly 10% or moreofthebanksorsecuritiesdealerscapitalorvotingrights orotherwiseexertingasignifcantinfuence,arealsosubjectto scrutinybyFINMA.Shareholderswhoacquireorsellaqualify-ing shareholding, or who increase or decrease their shareholding beyond 20, 33 or 50%, must notify FINMA before completing the transaction. An additional licence is required for a Swiss bank or securitiesdealerunderforeigncontrolorincaseofchangesin the foreign control. Insurance companies: If a person intends to, directly or indirectly, acquire a participation in a (re-)insurance company domiciled in Switzerland,itmustnotifyFINMAif,asaresult,itreachesor exceeds the thresholds of 10, 20, 33 or 50% of the capital or voting rights of the Swiss (re-)insurance company. Investment fund managers: Qualifying shareholders, i.e. persons or entities owning directly or indirectly 10% or more of the capital or voting rights of the fund manager or otherwise exerting a signifcant infuence on the fund manager, are subject to scrutiny by FINMA.9)WhatpoliciesareinplaceforChinesecompanies wishing to list on capital markets in Switzerland? Switzerlandsregulatedsecuritiesmarketconsistsmainlyofthe SIX Swiss Exchange (SIX). SIX is a regulated securities exchange market in Zurich and the reference market for more than 40,000 securities, connecting investors, issuers and participants from all over the world. Within SIX, the Regulatory Board decides on the admissiontolistingandensuresthatissuersfulfltheirobliga-tions during listing. Typically, admission is granted based on a prospectus in line withinternationalstandards.Prospectusreviewbythelisting authoritiesisaformalone(mainlycompleteness)anddoesnot extend to verifcation of the content. However, wrong or mislead-ing information in the prospectus may trigger prospectus liability of those responsible for such misinformation.Fortheprimarylisting,non-Swississuershavetocomply with the same listing requirements as domestic issuers. Require-ments include that:at least 25 % of the issuers shares will be free-foating; the free-foat has an expected market capitalisation of at least CHF25 million;theissuersreportedequitycapitalmustbeatleastCHF25 million. Oncelisted,theissuerissubjecttoongoingobligationsfor maintainingthelisting.Suchcontinuingobligationsinclude(in case of equity securities):periodicreportingincompliancewithfnancialreporting standards recognised by SIX; disclosure of price-sensitive facts (ad hoc publicity);disclosure of management transactions; anddisclosure of substantive shareholdings.ForsecondarylistedforeignissuersatSIX(issuerswitha primarylistingelsewhere),regulatoryandongoingdisclosure requirements are relaxed and largely refer to the flings and rules of the primary stock exchange.10) What are the main features of Swiss merger control?Legalframework:MergercontrolinSwitzerlandisgovernedby theFederalActonCartelsandOtherRestraintsofCompetition (Cartel Act) and the Ordinance on the Control of Concentrations of Undertakings (Merger Control Ordinance).Notifcationduty:Plannedconcentrationsofundertakings, mergersaswellasacquisitionsofsoleorjointcontrol,mustbe SWITZERLAND6869the EU that grants full relief from withholding tax on intra-group payments of dividends, interest and royalties. TecurrenttreatywithChinaprovidesformaximumwith-holding tax rates of 10% on dividends, 10% on interest and 10% onroyalties.ChinaandSwitzerlandhaveparagraphedarevised treaty.Itisexpectedtoenterintoforcein2014or2015and providesformaximumwithholdingtaxratesof5%onintra-group dividends, 10% on interest and 9% on royalties.TetreatywithHongKong,whichenteredintoforceon January12013,providesformaximumwithholdingtaxratesof 0% on intra-group dividends, 0% on interest and 3% on royalties.TerevisedtreatywithSingaporeappliedsinceJanuary 12013,providesformaximumwithholdingtaxratesof5%on intra-group dividends, 5% on interest and 5% on royalties.WithrespecttoSwisstaxes,thesetreatyratesapplytothe extentthattheSwisstaxesarenotlower.Inparticular,theydo notapplytoroyaltiessinceSwitzerlanddoesnotlevyanywith-holdingtaxesonroyalties.Further,Switzerlanddoesnotlevy anywithholdingtaxesoncertaintypesofinterest,inparticular, interestonintra-grouploansoronloansthatdonotqualifyas bonds or notes.13)WhattaxadvantagesdoesSwitzerlandofferfor Chinese investors?Switzerlandofersingeneralrelativelymoderatecorporate incometaxrates(dependingontheregion,i.e.state,between 12%and24%)andvalueaddedtaxrate(8%).Interestexpenses onloansfromrelatedpartiesaredeductibleprovidedthatthey are in line with the thin capitalisation rules and the arms length rules for related party loans.Switzerland unilaterally, irrespective of the application of any double taxation treaty, exempts all the proft attributed to foreign permanent establishments and foreign real estate from the Swiss tax base. In addition, the Swiss participation exemption regime applies atfederalandregionalleveltoallSwissresidentcompaniesand Swiss permanent establishments of foreign companies that own a qualifying participation in a subsidiary. Te participation exemp-tionisgrantedirrespectiveofwhetherthereisanytaxationat the level of the subsidiary or whether any double taxation treaty applies.SwitzerlandhasnotintroducedanyControlledForeign Corporation (CFC) rules. A qualifying participation has diferent thresholdsdependingonwhethertheexemptionisgrantedfor dividendsorforcapitalgainsfromthedisposalofshares.Te thresholds are:for dividend income: an equity investment of at least 10% or with a value of at least CHF1 million;for capital gains from the disposal of shares: an equity invest-ment of at least 10% that has been held for at least one year.Severalfurtherspecialregimesandreliefsarebenefcialfor investments:Regional holding company regime: Not only the income from participationsbutalltheincomeisexemptfromregional andcommunalcorporationtax,ifacompanyqualifesasa holdingcompany.Atthefederallevel,ontheotherhand,a holdingcompanyisanordinarytaxpayeratstandardrates of 8.5% (7.8% before taxes), but the participation exemption regimedescribedaboveappliestoincomefromparticipa-tions.Holdingcompanystatusisgrantedifthefollowing requirementsaremet:(a)themainpurposeofthecompany istheholdingandmanagementoflong-termfnancialpar-ticipations in the subsidiary companies; (b) at least two-thirds ofeithertheassetsortheincomeiscomposedoforderived fromparticipations;and(c)thecompanyisnotengagedin any commercial activity in Switzerland. Tere are certain dif-ferencesinwhichactivitiesareacceptedbytheregions.In general,managementandadministrationofthecompany itself is tolerated.Mixedcompanies(trading,IP,etc.):ASwisscompanyora branchofaforeigncompanyqualifesforthetaxprivilegeofa mixedcompanyattheregionalandcommunallevelifitdoes notengageinanycommercialactivitywithinSwitzerlandorif itengagesinsuchactivitiestoonlyasmallextent.Ingeneral, at least 80% of the income must be derived from abroad and at least 80 % of the expenses have to be foreign expenses. Terefore, mixedcompaniesareofenusedforinternationaltrading, licensing and franchising activities. Swiss source income is taxed at standard rates, whereas foreign source income is only partially included in the Swiss tax base. Tus, depending on the specifc regionalrequirements,thespecifcregionaltaxratesandthe amountofSwisssourceincome,theoveralltaxratesofmixed companiesinSwitzerlandforfederal,regionalandcommunal tax purposes vary between 8% and 11%.Stateaid:SinceSwitzerlandisnotamemberoftheEU,itis in principle not limited by the European prohibition on state aid. However, Switzerland has introduced unilateral rules that limittheapplicationofstateaidtocertainregionsthatare economically not well developed. Depending on the size and the function of the newly established business, an exemption ofupto50%fromregionalorcommunalincometaxesand, in specifed areas, also from federal income taxes for a period of up to 10 years, may be granted. Depending on the area and the structure, the exemptions may even be extended afer the 10-year period has lapsed.Principalstructures:Swissprincipalcompaniesofinter-nationalgroupscanbeneftfromaspecialtaxtreatment forfederalincometaxpurposes.Aprincipalcompanyisa company with several high-level employees that assumes risks andresponsibilitiesforcertainactivities,suchaspurchas-ing,researchanddevelopment,manufacturing,distribution, marketingstrategyandlogistics.Providedthatthesalesare madeexclusivelythroughcommissionagentsorlimitedrisk distributioncompaniesofthegroup,theprincipalcompany canreachareducedSwisstaxbasethatresults,incombina-tionwiththeregionaltaxregimeofthemixedcompany,in taxratesaslowasapproximately5to7%,dependingonthe set-up and location.Nowithholdingtaxonroyaltyincomeandcertaintypesof interest payments: See question 12.14) What exit mechanisms are in place in Switzerland SWITZERLAND7071placeintheInternationalChamberofCommercesstatisticof venues,toppedonlybyFranceasthehostcountryanddefault venueoftheICC.Overtheyears2008to2010,Switzerlandsaw 288newICCcases,versus204fortheUK,114fortheUS,93 forSingaporeand35forChinaandHongKong.Switzerlandis also the home of the Court of Arbitration for Sports and thus the venue of most major sports disputes, including those in relation to the Olympics Games and FIFA. Te popularity of the use of Swiss substantive law to govern international contracts is evidenced by its number one position in ICC disputes (12% Swiss law, 10.7 % UK law, 10.6 % US law, according to the latest statistics).ArbitrationinSwitzerlandmaybebasedonanysetofrules thatthepartiesmaychoose.ApartfromICCrules,theSwiss ChambersSwissRulesforInternationalArbitrationthatare basedontheUNCITRALArbitrationRulesareverypopular. MorethantwothirdsofthepartiesarbitratingundertheSwiss Rules are non-Swiss, in line with the average percentage of foreign parties in all international proceedings in Switzerland.Switzerlandhasalongtraditionofsolvinginternational disputes in an efcient, neutral and professional manner, catering totheneedsofinternationalbusinesspeople,governmentsand athletes alike. Te arbitration law is attuned to the needs of inter-nationalarbitration.AuniquefeatureofSwissarbitrationlawis the direct and only recourse to the Swiss Supreme Court for any challenges against an arbitral award. Tis setting-aside procedure typicallytakeslessthansixmonths,withlessthan7%ofall awards being vacated. Whatifarbitrationisnotpossible?Unlikecourtsinother jurisdictions,theSwisscommercialcourtswillinglyassistthe partiesinfndingareasonablesolutiontotheirdisputeearlyon intheproceedingsandbasedonprima-facieassessmentofthe strengths and weaknesses of the case by the court itself. Further, thepartiesneednotfearexpensiveanddisruptivedocument productionproceedingsthatareknownfromcommonlaw jurisdictions (no discovery). 7273TOB(i)(ii)(iii)33%49%6012TOBTOB67%51%95%90% 10%5%10% 7) 8) 10%Dieter Gericke Homburger/Felix Dasser/ Marcel Dietrich // Gregor Bhler/ Reto Heuberger 747513) 12%24%8% ControlledForeignCorporation10%10010%18.5%7.8%(a)(b)(c)80%80%8%11%50%10105%7%1214) IPO35%0%121315) 201010557050UCAUCAUCAPCPC7679The Turkish economy has experienced rapid growth over the pastdecadeandwillcontinuetodosoonthebasisofits current plan to attract foreign investors. Te shif from the principle of equality between foreign and domestic investors to a legislative arena which introduces unilateral benefts in tax advan-tages, exemptions and incentives for foreign investors has greatly beneftted Turkey. Major projects that generate the most income include energy, infrastructure and fnance. While themainandfnalaimoftheTurkishgovern-mentistostrengthenthecountryseconomy,in theshortterm,theseadvantagesoferconsider-ableeconomicbeneftstoforeigninvestors.In additiontolegislativedevelopments,Turkeyhas been signing intergovernmental agreements over reciprocal treatment of investments and approxi-mately 80 agreements are currently in efect. New incentive packageTeCouncilofMinistersDecisionnumbered2012/3305and dated June 19 2012 introduces a new incentive system and brings various advantages for both local and foreign investors. Te new incentivesystemrecognisesfourtypesofincentiveimplemen-tations:generalincentiveimplementation;regionalincentive implementation; implementation for large-scale investments; and implementation for strategic investments. It also introduces nine incentiveitems.Teseincentiveitemsandtheirclassifcation under the incentive implementation are outlined in fgure 1.Energy investmentsWithanaimtodecreasethecountrysdependencyonforeign energyresources,theTurkishenergymarketandtheapplicable legislationhaveundergoneaheavyliberalisationprocesssince thelate2000s.Tecountrysever-growingdemandforelectric-ityisexpectedtoleadtoanelectricityshortfallby2016,which indicates the need for new investments in the sector. Specifcally, Turkeyhasatotalinstalledcapacityofapproximately53,035 MW. According to projections, the demand for electricity should increase by 6.5% to 7.5% each year until 2020.Asaresult,anewElectricityLawhasbeenenacted.Te newlawintend