Intermediary Financing

1. Intermediary Financing 2018

2. ParentCo Transfer Pricing Example United Kingdom Intermediary Financing Services • Entities background • ParentCo is a United Kingdom company • LuxCo is a Luxembourg company, which was incorporated as a SocieteAnonyme, for an unlimited period and with a share capital for the amount of EUR 31,000, • GermCo is a German Company, which was incorporated in order to act as a special purpose vehicle to perform the acquisition of a real estate building located in Germany. LuxCo Luxembourg GermCo Germany Real Estate Building Germany

3. ParentCo Transfer Pricing Example United Kingdom Interest Expense EUR 148,000(Operational Expense Loan Agreement EUR 10,000,000 (Loan Payable) Intermediary Financing Services • Transaction details • ParentCo has subscribed a loan Agreement (Loan Payable) from LuxCo for an amount of EUR 10,000,000. In exchange, Luxco has paid interest expense for an amount of EUR 148,000 (for the first year). • LuxCo has granted a loan Agreement (Loan Receivable) to GermCo for the same amount. In exchange, LuxCo has received interest income for an amount of EUR 150,000 (for the first year). • Caractherization of the transaction • LuxCo is receiving funds on behalf of GermCo in order to perform the acquisition of a real estate building located in Germany (investment). Therefore, it should be treated as the equivalent to one single incoming and outgoing transaction and considered as intra-group financing services provided by LuxCo to GermCo. • LuxCo is performing loan origination activities and assuming equity at risk on behalf of GermCo. Thus, this transaction is in line with the Circular’ requirements, therefore a transfer pricing study should be performed in order to determine the arm’s length remuneration (equity at risk remuneration). LuxCo Luxembourg Loan Agreement EUR 10,000,000(Loan Receivable) Interest Income EUR 150,000(Operational Revenue) GermCo Germany Real Estate Building Germany

4. ParentCo Transfer Pricing Example United Kingdom EUR 10,000,000 (Loan Payable) Intermediary Financing Services i) Amount of equity at risk of EUR 101,581. ii) Equity at riskremuneration of EUR 156,613. iii) Taxable Income of EUR 8,613. Transfer Pricing Study • No Transfer Pricing Study • If LuxCo does not prepare a Transfer Pricing Study, LuxCo is exposed to the following: • Transfer pricing adjustment: A minimum net income after taxes equal to 2% on the assets financed based upon the circular (one year). For LuxCo, It means a transfer pricing adjustment for the amount of EUR 274,273. • Transfer Pricing Study • If LuxCo prepares a Transfer Pricing Study, LuxCo is not exposed to transfer pricing adjustments and shoud determine the following components: • Amount of equity at risk: Based on a credit risk analysis of GermCo, it was determined that the amount of equity that LuxCo is assuming at risk on behalf of GermCo is equal to EUR 101,581. • Equity at risk remuneration: Based on the Capital Asset Pricing Model, it was determined that the amount of equity at risk remuneration to be paid by GermCo to LuxCo is equal to EUR 156,613. • Taxable income: As a consequence of the equity at risk remuneration, it was determined that the amount of taxable income is equal to EUR 8,613. LuxCo Yes Luxembourg No EUR 10,000,000(Loan Receivable) TP adjustment for the amount of EUR 274,273 (one year). GermCo Germany Real Estate Building Germany