CLASSIFICATION SHEET

COP
This document relates to the following request:
January 28, 20 I0

References: VCO/AYHNMLMX/ LITY/HMIR/Ql 7810001 M-GYVN

Procter & Gamble Luxembourg Global S.a.r.1- Tax Number: 2005 24 15854
Procter & Gamble International S.a.r.1 - (formally Procter & Gamble Luxembourg
Holding S.a.r.l), Tax Number: 2003 24 02381
Procter & Gamble Financial Services SA - Tax Number: 2009 22 05968

~topics:

Migration, downstream meroer, c11 ital i1in for non-residents

2. Name of the advisor : PwC

3. Corporate group's name, or fund sponsor: Procter & Gamble Co.
r-~~~~~~~~~

4. Name of the
-----

roect: Bermuda Restructurin

S. Amount intended to be invested: a

I 6. Date of implementation: Feb I Jul

rox 50 BN
2010

BUREAU D'IMPOSITION s C1.'8:

ENTF?~E

For the attention of Mr Marius Kohl

aterhouseCoopers
Soci tc :\ rcsponsabilitc limitcc
Rcvi cur d'cntrcpriscs
400, outc d'Esch
B.P. 443
L-10 4 Luxembourg

Tele hone +352 494848-1

~Nfj~-~~----j.-F,~milc -1352 494848-2900
www.pwc.com/lu
inf'o@lu.pwc.com

January 28, 20 I 0
References: VCO/AHYA/MLMX/LTTY /HMIR/Q 17810001 M-G YVN

Procter and Gamble Luxembourg Global S.a.r.l. -Tax Number: 2005 24 15854
Procter and Gamble International S.a.r.1 - (formally Procter & Gamble Luxembourg
Holding S.a r.l.), Tax Number: 2003 24 02381
Procter and Gamble Financial Services SA-Tax Number: 2009 22 05968
Bermuda Restructuring
Dear Mr. Kohl,
In our capacity of tax consultant of Procter & Gamble, we discussed in our meeting dated
October 19, 2009 the tax treatment applicable to the transactions foreseen by our client.
This letter aims at confirming the conclusions reached during this meeting and will serve
as basis for the preparation of the tax returns of the Luxembourg companies involved.

A.

Facts

A.1

Background

1.

Procter & Gamble Global Holding Ltd (Bermuda) (refened as "Global Bermuda")
holds 100% of Procter & Gamble Global S.a.r.I (referred as "Global Luxembourg").
Global Luxembomg is the top Luxembourg holding company of the P&G group and
directly or indirectly holds all the other Luxembourg companies of Procter &
Gamble.

2.

As all the Luxembourg entities of the Group, Global Luxembourg has a functional
currency denominated in USD for tax and accounting purposes and its accounting
year is July 1 I June 30.

R.C.S. Lu,cmbourg 13 65 477 - TVA LU 17564447

A.2

Restructuring

3.

For your information, you will find in Enclosure l to this letter, a simplified
organization chart of the group summarizing the structure prior to this
reorganization.

4.

The relevant steps of the restructuring, from a Luxembourg income tax perspective,
as well as a simplified organizational chart upon completion of the reorganization,
are attached in Enclosure 2 to this letter.

B.

Applicable tax regime

B.1 Tax treatment of the modification of the share capital (number of shares I par
value)
5.

To simplify the restructuring process, Global Luxembourg will convert all its shares
(i.e. 31,354,126) with a par value ofUSD 50 into l,567,706,300 shares with a par
value of USD 1.

6.

Given that the total amount of the share capital will not change further to the above
conversion, such an increase of the number of Global Luxembourg shares (and the
reduction of the par value of the shares) should have no consequences on the
corporate income tax, municipal business tax and net wealth tax situation of the
company.

B.2

Tax treatment of the redemption of the share capital

7.

Global Luxembourg will redeem l ,567,683,732 shares with a par value of USD I.
This redemption will be settled via a new inter-company loan to be concluded
between Global Luxembourg and Global Bermuda.

8.

Global Luxembourg will subsequently cancel its 1,567,683,732 own shares directly
after their redemption.

9.

From a tax perspective, the redemption by Global Luxembourg of its own shares
held by Global Bermuda followed by their cancellation should not be subject to
withholding tax provided Global Luxembourg does not have any distributable profit
at the time of such transactions

10.

Under Article 97 (I) LITL, any distribution or allocation by a corporate entity to its
stakeholders which can be linked to the holding of shares of whatever nature is
qualified as income from capital. Such income from capital should be subject to
withholding tax in Luxembourg under Article 146 ( 1) l 0 LITL.

11.

In the case at hand, as the redemption will occur for the value of the share capital
represented by the redeemed shares, and the cancellation of the redeemed shares will
only entail the cancellation of the share capital representing external contributions,
Global Luxembourg will not make any allocation of profit to Global Bermuda under
whatever form (especially considering that it does not have any retained earnings),
meaning that such allocation will not fall under the meaning of Article 97 (I) LITL

(2)

(by application of Article 97(3) LTTL - please refer to Appendix 3) and will
therefore not be subject to Luxembourg withholding tax based on Article 146 ( l) I 0

LITL.
12.

B.3
13.

As regards the newly created loan receivable to be concluded between Global

Bermuda and Global Luxembourg on February 2, 2010, considering that it should be
contributed on February 5, 20 I 0 to Global Luxembourg (in view of its cancellation),
no interest charge I income will be recognized on this loan at the level of Global
Luxembourg and Global Bermuda respectively.
Capitalization of the loan receivables
As mentioned in Enclosure 2, several Joan receivables will be capitalized down the
chain (first by Global Bermuda to Global Luxembourg and then by Global
Luxembourg to PGI). Please also refer to Enclosure 4 for more details.

B.3.1 Priority allocation of the equity at the level of Global Luxembourg

14.

At the level of Global Luxembourg (in view of the capitalization of the loans and the
subsequent downstream merger), for corporate income tax, municipal business tax
and net wealth tax purposes, the debt existing at the level of Global Luxembourg will
be considered as financing by priority the other assets than the participations
qualifying for the participation exemption regime. Mutually, the participations
qualifying for the participation exemption regime will be deemed to be financed by
priority by equity (i.e. share capital, share premium, retained earnings).

B.3.2 Corporate income tax and municipal business tax

15.

These capitalizations of the loans down the chain will not have any consequences on
the corporate income tax and municipal business tax basis of Global Luxembourg as:
The loan receivables held by Global Bermuda towards Global Luxembourg will
be fully transferred (interest plus nominal value) to Global Luxembourg and
legally cancelled at the same time;
The loan receivable (and related accrued interest) held towards PGI as well as
the loan held towards the cash pool will be contributed down by Global
Luxembourg to PGJ on the same day (i.e. on February 5, 2010) of their
acquisition by Global Luxembourg (no taxable interest will be recognized at the
level of Global Luxembourg). Note that the USD 2 MM Global Luxembourg's
own cash pool balance will also be contributed to PGI at the same time.

16.

By application to the priority allocation of the equity to the qualifying shareholdings

at the level of Global Luxembourg (please refer to section B.3. I), this capitalization
of PGI will not increase its unitary value.

17.

At the level of PGI, the interest income generated by the USD 34 MM loan
receivable (that will be finally held towards the cash pool company) will be fully
taxable. As a result of the priority allocation of the equity, for corporate income tax,
municipal business tax and net wealth tax purposes, to the qualifying participations

(3)

held by POI (sec section 8 of the letter dated January 31 , 2006

(ref: RBS/JRMS/CECE/Q5706006M-RBS - attached in Enclosure 5), the debt
existing at the level of POI is considered to be financing by priority the other assets
than the participations qualifying for the participation exemption regime.
18.

Any financial on-lending activity performed by POI will be subject to corporate tax
on a taxable basis corresponding to a net margin of at least 0.03% ("3 bps") on the
amount on-lent (calculated on a prorata basis).

19.

This 3 bps margin was initially agreed in the framework of the restructuring carried
out in 2000 (Advance Tax Agreement regarding in particular Procter & Gamble
Luxembourg Finance S.a r.1 submitted by Dcloitte and Touche and signed on August
9, 2000) and was then extended to all the financial on-lending activities carried out
by the Luxembourg companies of the P&G Group (please refer to the Advance Tax
Agreement dated October 22, 2008 - ref: VCO/AYHA/MLMX/LTIYIQ1780801 OM
-GYVN).

20.

In the event where the profit on that activity, as computed pursuant to standard tax
rules, would be lower than the minimum taxable spread, it would be adjusted up to
the minimum taxable spread. On the other hand, should the profit be higher, this
higher amount would be subject to tax.

B.4 Migration of Global Bermuda to Luxembourg

21.

Global Bermuda will migrate its central administration (management and control)
and its statutory scat from Bermuda to Luxembourg.

22.

As Global Bermuda will have its place of central administration in Luxembourg, it

will be considered as a fully taxable Luxembourg resident capital company as of the
date of its migration (within the meaning of article 159 LITL). Its shareholders'
meetings and its board meetings will regularly and physically be held m
Luxembourg, that the main management decisions will be effectively taken m
Luxembourg and that its accounting and archives will be kept in Luxembourg.

23.

On the day of migration, the company will hold a first board meeting with the
managers effectively present in Luxembourg (i.e. upon migration).

24.

Consequently, Luxembourg tax residency certificates will be delivered by the

Luxembourg tax authorities upon request. Furthermore, the first financial year will
go as from the date of migration to June 30, 20 I 0. The first tax return will cover the
period from the date of migration to June 30, 2010 (except if the envisaged
downstream merger occurs between May and June 30, 2010).

25.

Upon migration, Global Bermuda may establish a tax balance sheet in which its
assets and liabilities may be recognized at fair market value. Basically, a step up in
value of all the assets I liabilities of the migrated entity may be recognized based on
article 35 of the Luxembourg Income Tax Law ("LITL"). The step up in value in the
tax balance sheet of Global Bermuda will nevertheless be capped to the operational
value of the assets and liabilities, defined as the acquisition cost that would be

(4)

allocated to the assets I liabilities within a global acquisition of the enterprise on an

on-going basis.
26.

At the time of the migration, it has to be noted that Global Bermuda will only hold
the Global Luxembourg shares, meaning that no other assets will be held by Global
Bermuda.

27.

It has been determined by P&G that the fair market value of the Global Luxembourg
shares should correspond at least to their book value (as recorded in the accounts of
Global Bermuda). Therefore, for simplification purposes, it has been decided to
consider the book value of the Global Luxembourg shares without taking (taxwise)
into account a potential step up in value when determining the "fiscal capital" at the
time of the migration (for the preparation of the first Luxembourg corporate tax
return of the company). Article 35 of the LITL only offers a possibility (without
obligation) to the tax payer to consider (taxwise) a step up in value (up to the amount
of the fair market value, if this amount is higher than the book value) of the
assets/liabilities held at the time of the migration to Luxembourg.

28.

Accordingly, at the time of the preparation of its Luxembourg direct tax returns,
Global Bermuda will draw a tax balance sheet in order to show a "re-valued fiscal
capital", whjch will include in particular the following book entries (as existing at the
time of the migration):
The statutory share capital of the company;
The share premium of the company;
The retained earnings of the company and the profit generated during the
relevant fiscal year (i.e. existing prior to the moment of the migration);
The (legal and others) reserves.

B.5

Functional currency

29.

USD will be the functional currency of Global Bermuda for accounting and tax
purposes (note that, among others, the share capital of the entity will be denominated
in USD) as from its date of migration to Luxembourg. This implies that the tax
returns will be prepared on the basis of the accounts in USD and the net result will be
converted into EUR by using the year end EUR I USD market rate.

B.6

Luxembourg tax qualification of P&G Nordic LLC and P&G Eastern Europe
LLC (the "LLCs")

30.

The Advance Tax Agreement dated January 31, 2006 (attached in Enclosure 5),
covers, among others, the tax transparency of P&G Australia Holding LLC (and
other entities having similar characteristics) and states in particular that:

"Provided that the articles of incorporation of other P&G LLCs are similar to those
of the P&G Australia Holding LLC, the P&G LLCsfollow the same tax treatment as
P&G Australia Holding LLC'.
31.

On the basis of article 175 LITL and article 11 bis of Steueranpassungsgesetz

"StAnpG" and according to the characteristics outlined in the aforementioned Letter,
(5)

P&G Nordic LLC and P&G Eastern Europe LLC should be qualified as tax
transparent entities as both entities have the same legal characteristics as the ones of
P&G Australia Holding LLC. The articles of incorporation of both entities are
attached in Enclosure 6.
32.

Accordingly, Global Bermuda should be considered as having been directly held,

prior to and after its migration to Luxembourg, by the P&G Company (sole
shareholder of both LLCs and ultimate (listed) US parent company of the group.

33.

The same reasoning will have to be applied at the level of Global Luxembourg after
the downstream merger with Global Bermuda.

34.

Finally, the distribution of the Global Luxembourg shares by the LLCs to the P&G
Company (i.e. after the downstream merger with Global Bermuda) should be
considered as a non event from a Luxembourg tax perspective since, as from the
downstream merger, Global Luxembourg will be deemed as being directly held by
the P&G Company.

B.7

Repatriation of cash up the chain to the P&G Company

35.

In the event where it would be decided to repatriate cash from POI to the P&G
company (up the chain through Global Luxembourg and Global Bermuda, i.e. after
the migration of Global Bermuda to Luxembourg but before its downstream merger
into Global Luxembourg), such a repatriation would be structured as follows:
i)
ii)
iii)

Dividend distribution from PGl to Global Luxembourg;

Share premium I share capital reimbursement from Global
Luxembourg to Global Bermuda;
Share premium I share capital reimbursement from Global Bermuda to
the P&G Company (due to the Luxembourg tax transparency of P&G
Nordic LLC and P&G Eastern Europe LLC).

B.7.1 Dividend distribution

36.

Considering that Global Luxembourg and POI fulfill the requirements of the
Luxembourg participation exemption regime (article 147 and 166 of the LTTL), any
dividend distributions from POI to Global Luxembourg should neither be subject to
corporate income tax I municipal business tax (at the level of Global Luxembourg)
nor subject to withholding tax (once declared by PGI). The mechanism of the
recapture would however have to be applied (based on article 166 (5) LITL).

37.

On an ongoing basis, It has also to be noted that further to the downstream merger,
Global Luxembourg should be considered as directly held by the P&O Company (US
tax resident entity). Accordingly, provided that all the requirements of the article 146
of the LITL are met, no withholding tax should be levied on dividend payments made
by Global Luxembourg to the P&G Company (i.e. through P&O Nordic LLC and
P&G Eastern Europe LLC).

38.

Please refer to E nclosure 7 for a more detailed analysis of the Luxembourg

participation exemption regime.

(6)

B.7.2 Share premium I share capital reimbursement from Global Luxembourg and
Global Bermuda
39.

These share capital I share premium reimbursements would be carried out

(respectively) to the benefit of Global Bermuda and (from a tax perspective) of the
P&G Company and would have the following consequences (Please refer to
Enclosure 3 for a more detailed analysis):
The proceeds allocated further to a reduction of share capital I share premium
and corresponding to contributions of the shareholders are not deemed to
constitute income from movable property, meaning that these events should be
considered as tax neutral from a Luxembourg withholding tax perspective.
In accordance with Article 97(3) LITL, as Global Luxembourg I Global
Bermuda should be considered as having legitimate economic reasons to
proceed to a share capital/share premium reduction, no withholding tax will
apply on amounts reimbursed to Global Bermuda.
Should Global Luxembourg I Global Bermuda have any distributable reserves at
the time of their capital /share premium reimbursements, such operations will, for
withholding tax purposes, be seen as dividend payments from a Luxembourg tax
perspective, up to the amount of the existing reserves.

If distributable profits (generated during the considered fiscal year) would be

booked at the level of Global Luxembourg or at the level of Global Bermuda
(after its migration), those should not have to be considered as retained earnings
under the meaning of Article 97(3) b LITL and therefore such a reimbursement
of share capital I share premium should not become subject to withholding tax
as a result thereof.
40.

Considering that no retained earnings (available or previously incorporated into the

share capital) have been booked at the level of Global Luxembourg I Global Bermuda
(for the latter, due to the recognition of a "fiscal capital" generated by its migration to
Luxembourg), the above criteria should be considered as met, meaning that this
repurchase of shares (in view of their cancellation) or share premium should not be
assimilated to an income from movable property and therefore should not be subject
to withholding tax.

41.

At the level of Global Bermuda (once migrated to Luxembourg), the proceeds

allocated by Global Luxembourg at the occasion of the reduction of its share capital I
share premium should only have a balance sheet consequence, i.e. without impacting
the profit and loss account of Global Bermuda (consequently, this reimbursement of
share capital I share premium will not be considered at the level of Global Bermuda
as a taxable income).

(7)

8.8

Downstream merger

42.

As described in Enclosure 2 (step 6), a:tler its migration to Luxembomg, Global

Bermuda will merge downstream into Global Luxembourg (which will remain as the
surviving entity).

43.

At the time of the merger, the sole assets/liabilities that will be held by Global
Bermuda will be the Global Luxembourg shares.

44.

Accordingly, for simplification purposes, instead of transferring the assets and

liabilities of Global Bermuda (basically the Global Luxembourg shares) to Global
Luxembourg (in view of their cancellation), it has been decided to directly transfer all
the Global Luxembourg shares held by Global Bermuda to the P&G Company (i.e.
taxwise, through P&G Nordic LLC and P&G Eastern Europe LLC), i.e. without any
issuance of new shares by Global Luxembourg.

B.8.1 Transfer of the Global Luxembourg shares to the P&G Company

45.

A merger being envisaged in article 101 (2) LITL, the transfer of the Global
Luxembourg shares to the P&G Company (i.e. through the LLCs) should not be
subject to withholding tax (by application to the articles 97 (3) d and l 0 l of the
LITL).

46.

Basically, under the above articles, any income accruing to the shareholder from the
liquidation proceeds or fro m the transfer of the net asset of the considered company
is to be regarded from a Luxembourg withholding tax point of view as a capital gain
and not as a dividend.

47.

Consequently, any income arising from this disposal of the Global Luxembourg
shares at the level of Global Bermuda will not be subject to withholding tax as
imposed by articles 97(1) and 146 LITL.

B.8.2 Transfer of the assets I liabilities held by Global Bermuda at the time of the
merger

48.

As mentioned above, at the time of the downstream merger, the sole assets/liabilities
that will be held by Global Bermuda should be the Global Luxembourg shares,
meaning that no additional assets I liabilities should be booked at the level of Global
Bermuda at the time of the merger.

49.

Accordingly, no assets/liabilities should be contributed to Global Luxembourg by

Global Bermuda, meaning that the merger process will not require the issuance of
new shares by Global Luxernbomg to the shareholders of Global Bermuda, i.e. as a
remuneration of the contribution (see Enclosure 8 and section B.8 which details the
merger process).

(8)

50. Consequently, from a Luxembourg tax perspective, the merger process should not
lead to the recognition of any hidden capital contribution (from the shareholder of
Global Bermuda, i.e. the P&G Company due to the tax transparency of the US LLCs,
to Global Luxembourg) nor of any hidden distribution of profit (from Global
Luxembourg to The P&G Company).
B.8.3 Capital gains on the assets / liabilities held by Global Bermuda at the time of the
merger (i.e. especially on the Global Luxembourg shares)
51.

At the level of Global Bermuda, the tax neutral merger regime foreseen by article 170
of the LITL will be applied.

52. The acquisition costs of the assets I liabilities of the absorbed entity as well as their
respective acquisition dates would be transferred to the absorbing entity (i.e. Global
Luxembourg), meaning that the latter would have to take over these assets / liabilities
at book value (tax and accounting wise).
53.

Any potential capital gain that would be realized on the Global Luxembourg shares at
the level of Global Bermuda (i.e. corresponding to the difference between the book
value of the shares and their fair market value) should be tax exempt (due to the
application by assimilation of the exemption foreseen by Article 171 3 LITL). Please
refer to Enclosure 8 for a more detailed analysis.

B.8.4 Consequences on the existing carried fonvard tax losses and on the tax unity
regime
54.

The downstream merger will not have any impact on the existing carried forward
losses at the level of Global Luxembourg or on the tax unity regime applicable
between Global Luxembourg, POI and P&G Financial Services Sari.

B.9 Application of article 156 (8) of the LITL

55.

56.

Article 156 (8) a) LITL provides for the taxation of non-residents shareholders on
capital gains arising upon disposal of a shareholding that constitutes an "important
participation" within the meaning of Article 100 LlTL in a company having either its
registered office or its principal establishment in Luxembourg, within 6 months of the
acquisition of the shareholding. Non-resident shareholders are taxable in
Luxembourg upon the realization of a Luxembourg participation only to the extent
that:

the participation is realized within six months of the acquisition of the said
participation, and

the participation represents a stake of at least 10% of the share capital of the
Luxembourg company, and

the shareholder is not treaty protected.

Article 100 (2) LITL further defines that a shareholding should be considered as an
important participation if at any moment within the last 5 years the shareholder has
held, either directly or indirectly, a participation of at least 10% in the company.
(9)

57.

Capital gain taxation only arises if the company sells an important participation and if
the sale is done within 6 months from the acquisition of this important participation.
An important participation is a shareholding of at least I 0% of the share capital held
at any moment within the last 5 years.

58.

Even if the cancellation of the Global Bermuda shares in the hands of the P&G
Company (i.e. held through P&G Nordic LLC and P&G Eastern Europe LLC) further
to the downstream merger could lead, to a capital gain realization, such gain will not
be subject to tax in Luxembourg, meaning that article 156 (8) of the LITL should not
be applicable considering that:
On the basis of article 22 bis (3) LITL and article 102 ( 10) LITL, no capital
gain should be recognized on the exchange of shares carried out at the level of
the P&G Company through the transparent US LLCs (i.e. the Global Bermuda
shares being replaced by the ones of Global Luxembourg).
The P&G Company, a US tax resident company (under the meaning of article 4
of the Double Tax Treaty concluded between Luxembourg and the US, "OTT")
is subject to tax in the US. In addition, it meets the Limitation of Benefits
Clause of the DTT (i.e. articles 24-2.c, article 24-2.d and article 24-4 of the
DTr), meaning that article 14-5 of the DTT should be applicable to exempt this
capital gain from a Luxembourg tax perspective;

( 10)

We remain at your disposal should you need any further information and would like to
thank you for the attention that you wi ll give to our letter.

Valery Civilio
Partner

Appendix l:
Appendix 2:
Appendix 3:
Appendix 4:
Appendix 5:
Appendix 6:
Appendix 7:
Appendix 8:

71us

llLr

Current organization chart of the group

Step plan and final structure chart of the group
Redemption of share capital I share premium
Capitalization of the loans - Situation
Letter dated January 3 l, 2006
Articles of incorporation of P&G Nordic LLC and P&G Eastern Europe
LLC
Luxembourg participation exemption regime
Downstream merger

aiveemelll 1s based on 1he facls as presented to Pricewa1erho11seCoopers Sci r.I. as al 1he dale 1he advice was g1ve11. The

agreemelll 1s dependent 011 specific facts tmd circumstances and may 1101 be appropriale to c11101her party lhan 1he one for which it was
prepared. 711/s far agreement was prepared with only tile

i11teres1~

of Procter and Gamble Group in mind, cmd was not planned or

carried out /11 co111emlat/011 of any use by any other party. PricewaterhouseCoopers Sci r.I.. its partners, employees and or agenls,
neither owe nor acce1 a11y duty of care or any responsihili1y lo any Olher party, wliellier i11 con/rac/ or In tort (111c/11ding wi1ho111
limilm/011, 11eg//gence or hreach of statutory duty) however arising, a11d sha/11101 he liable /11 respect ofany loss, damage or expense of
w/1(1/ever nature which Is caused 10 any oilier party.

(1 1)

(12)

Appendix 1
Current simplified organization chart of the group

P&G Co.
(USA)

Procter &
Gamble
Nordic

Procter &
Gamble
East cm
Euroc 1.1.C

LLC

16,59%

83, 41 %

P&G Global Holding

(llcnuuda)

Prix;ter & Gamble

l uxcmbourg Global
$jrl (Luxc111bourg)
P&G l.ux Int Fin
Funding Gen M~n Si1rl

I share but

oo. I ~~I
99, 8 %

USU 5.7 BN

Procter & Gamble

lntcmntionnl Sdd
(Luxembourg)

general partner

with unlimited
liability
USD 34

MM

P&G Int f undlng SCA

Procter & Gamble

lntcmationul
Opcnuions
(Swil7..crland)

100%

,Proctor & Gamble

P&G Trading
int'I SARL
(Switzerlnnd)

Finnnci~I Servic~s

SA (l.nx~mbourg)
87. 74 %

P&G Italy Sri

(Italy)

12. 26 %

P&G Service.
Company

(13)

(14)

Appendix 2
Step plan
The restructuring steps involving the Luxembourg entities arc described below:
Step 1: On February 2, 2010, Global Luxembourg converts 31,354,126 shares with a par
value ofUSD 50 into 1,567,706,300 shares with a par value ofUSD I.
Step 2: On February 2, 2010, Global Luxembourg redeems 1,567,683,732 shares with a
par value of USD 1, for par value. This redemption is settled via a new USD intercompany loan to be concluded between Global Luxembourg and Global Bermuda.
Step 3: On February 5, 20 I 0, Global Bermuda contributes all its loan receivables to Global
Luxembourg, i.e.:

-The USO 49.3 BN loan receivable held towards Global Luxembourg;

- The newly created loan receivable recognized further to the repurchase of share
capital to be catTied out as a preliminary step of the restructuring;
- The USD 5.7 BN loan receivable held towards POI; and
- The USD 34 MM loan receivable held towards PGFS SA, the Luxembourg cash
pool company
Step 4: On February 5, 2010, Global Luxembourg contributes the USD 5.7 BN loan
receivables held towards POT, the USD 34 MM receivable held towards the Luxembourg
cash pool company to POI and the USD 2 MM Global Luxembourg's own cash pool
balance.
Step 5: On March 17, 20 I 0, Global Bermuda migrates its registered office and place of
effective management into Luxembourg.
Step 6: After its migration, between May and July, Global Bermuda merges downstream
into Global Luxembourg.
Step 7: Between May and July, P&G Nordic LLC and P&G Eastern Europe LLC
distribute Global Luxembourg to the P&G Company.

(15)

Final (abridged) structure of the Procter & Gamble Group

P&G r o. (USA)

Ptocto & Gamble

Lt1).l'1TLbowg Global
Sirl (I usmhourg)
00 I

Pro<ICI & Gomblc

lnl<m>1ional S3rl
(Lu,cml>oorg)

P&G Lu lnl Fin

Fundon~ G<n M'"

Sir!
99.8 ,
I 1ha1e bul
gencr1l panncr

wuhunhmned
habili1y
P&G ln1 hondin~
SCA

llSDJ-IMM

Proc1cr & Gamble

lntern11tionl'll

Opcn11ions
(Swiucrland)

Proctt.'1' Rnd Gamhlr

Phl.lnc.lal ScJ\1cu SA
<l u-.mbourg)

P&GTmlins
Int' ! S ARL

(Sw111erl1nd)
87 74 o/,

P&G halySrL
(Italy)

12 26'.

P&G Sorviccs
Company (Oelgoum)

( 16)

Appendix 3
Reimbursement of share capital I share premium
In view of the modification of the structure of the share capital of Global Luxembourg, a
capital reduction in exchange for a corresponding receivable is foreseen (step 2 of the
restructuring).

It is also envisaged t!hat, to repatriate cash up to the P&G Company, Global Luxembourg
and Global Bermuda (after its migration to Luxembourg but before its downstream merger
into Global Bermuda) could redeem their share premium or share capital.
By principle, Article 97 (1) of the Luxembourg income tax law ("LITL") states that all
dividends, profit sharings and other allocations granted under whatever form, in respect of
shares, profit shares or other participations of whatever nature in collective entities as
mentioned in Articles 159 and 160 LITL, are considered income from capital.
Under Article 97 ( I) LJTL almost any distribution or allocation by a corporate entity to its
stakeholders which can be linked to the holding of shares of whatever nature is to be
qualified as income from capital. Article 146 (1 ), I 0 LITL refers (among others) lo Article
97 (I), 1 LITL in order to determine the income that is subject to withholding tax in
Luxembourg.
Article 97, (3) b) LITL provides for an exception to Article 97 (1) LITL in stating that the
proceeds allocated at the occasion of the reduction of the share capital and corresponding
to contributions of the shareholders are not deemed to constitute income from movable
property.
Such reimbursement of share capital would however be taxable up to the amount of
retained earnings available or incorporated into the share capital, as such retained earnings
would be deemed distributed first.
Furthermore, the reduction of share capital will also be taxable if it is not motivated by
legitimate economic reasons. Accord ing to the Administrative Practice Note nr 113 of
October 3, 1985, if a company disposes of retained earnings that it does not want to
distribute to the shareholders, the reimbursement of share capital is not motivated by
legitimate economical reasons up to the retained earnings amount.
[n case the income allocated to the shareholders as a result of a reimbursement of share
capital cannot be excluded from the scope of Article 97 (1) LITL in application of
Article 97 (3) b) LITL, the reference made by Article 146 LIR to Article 97 (1) LIR in
order to determine the categories of income that are subject to withholding tax in
Luxembourg would automatically mean that such allocations would be subject to
withholding tax in Luxembourg at a rate of 15%.
Since the share premium, like the share capital, results from external contribution by the
shareholders, the reimbursement of the share premium can be assimilated to a reduction of
share capital from an economic and tax point of view. A reimbursement of share premium

(17)

is therefore also covered by article 97 (3) b) LITL and hence is out of the scope of article
97 (1) LITL.
Given the absence of retained earnings booked at the level of Global Luxembourg and the
fact that, further to its migration to Luxembourg, Global Bermuda booked a "re-valued
fiscal capital" in its tax balance sheet, any share capital I share premium reimbursement
carried out by Global Luxembourg or Global Bermuda to their respective parent company
should not be subject to withholding tax.
By the same token, if a distributable profit (generated during the fiscal year of - but prior to
- the migration) would be booked at the level of Global Luxembourg or of Global
Bermuda, it should not have to be considered as retained earnings under the meaning of
Article 97(3)b LITL and therefore the reimbursement of share capital I share premium
should not be subject to withholding tax).

(18)

Appendix 4
Capitalization of the loans - Situation
As mentioned in Appendix 2, several loan receivables will be capitalized (down the chain)
by Global Bermuda and Global Luxembourg as follows:
o On February 5, 20 I0, Global Bermuda contributes all its loan receivables to Global
Luxembourg, i.e.:
- The USD 49.3 BN loan receivable held towards Global Luxembourg;
- The newly created loan receivable recognized fw1her to the repurchase of
share capital to be carried out as a preliminary step of the restructuring;
- The USO 5.7 BN loan receivable held towards POI; and
- The USD 34 MM loan receivable held towards PGFS SA, the Luxembourg
cash pool company
o On February 5, 2010, Global Luxembourg contributes the USD 5.7 BN loan
receivables held towards PGI, the USO 34 MM receivable held towards the
Luxembourg cash pool company to PGI and the USO 2 MM Global Luxembourg's
own cash pool balance.
Basically, fu11her to these steps, the USD 49.3 BN receivables held towards Global
Luxembourg and the newly created loan receivable recognized further to the repurchase of
share capital will be automatically cancelled.
At the level of PGI, the USO 5.7 BN loan receivables will also be automatically cancelled
whereas the USO 34 MM and the USD 2 MM loans towards the Luxembourg cash pool
company will remain booked as assets.
In addition to the above consequences, these capital contributions will lead to a
corresponding increase of the accounting value of Global Luxembourg in the accounts of
Global Bermuda and of PGI in the accounts of Global Luxembourg.
Global Luxembourg and POI wi ll therefore respectively issue new shares to Global
Bermuda and Global Luxembourg further to the transfer of these loan receivables.
The contribution value of these receivables will correspond to their nominal values,
increased by the related accrued interests. Note that these contributions will be all carried
out the same day, i.e. on February 5, 2010.
In addition, it has to be noted that no impairments I value adjustments have been recorded
on the receivables held towards Global Luxembourg and POI.
Accordingly, no gain I loss is to be anticipated at the level of Global Luxembourg or at the
level of POI on those receivables.
(19)

(20)

Appendix 5
Letter dated January 31, 2006

(21)

(22)

PrlccwatcrhouseCoopcrs

Sociece i rcsponsablllli llmitee

Rhiscur d'enrnprbes

Mr. Marius Koh)

Administration des Contributions Dircctes
Bureau Societes VI
18, rue du Fort Wedell
L - 2982 Luxembourg

400, mute d'Esch

B.P. 1443
L-10 I4 l.uxcmboUt
Telephone +3S2 494848-1
Facsimile +3S2 494848-2900

January 31, 2006

Reference: RBS/JRMS/CECE/Q5706006M-RBS

Procter & GambJe Luxembourg Investment General Management S.a r.I., Tax
Number: 2004 24 20027
Procter & GambJe Luxembourg Investment SCS (formally Procter & Gamble
Luxembourg Investment S.a r.l.), Tax Number: 2004 21 00227
Procter & Gamble International S.a r.I. (formally P~octer & Gamble Luxembourg
Holding S.a r.I.), Tax Number: 2003 24 02381
Procter & Gamble Luxembourg GlobaJ S.a r.I., Tax Number: 2005 24 15854
Procter & Gamble Luxembourg Finance S.a r.l., Tax Number: 2000 24 09748

Dear Sir,
We refer to our letters dated June 7, 2005 and August 3, 2005 (the "Letters"). On behalf of
the abov~mentioned companies, we are pleased to submit for your review the transactions
described below and obtain your approval and/or comments on the Luxembourg tax
treatment described herein in relation with operations carried out or to be carried out in
Luxembourg.

BACKGROUND

Procter & Gamble (hereafter "P&G") has realigned its key international subsidiaries under
P&G International S.a r.l. (hereafter "P&G International"). Further to the restructuring
described in our Letters and in light of the current process of integrating the P&G group
with the Gillette group, P&G perfonned additional transactions and intends to proceed
within the following months with numerous restructuring, acquisitions and reorganization
transactions.

R.C. Lu'.\Conbour; B 6S 477 TVA LUl7$64447

LORETO Y PENA POBRE SA CV

We refer in this respect to our letter dated June 7, 2005.

In this letter, we stated that:

On November 30, 2003, P&G Holdings Ltd (an Irish non-resident entity, hereafter
referred as "Holdings") contributed a 15% interest in Loreto Y Pena Pobre SA CV,
a company incorporated under the law of Mexico, to P&G Luxembourg
Jnvestments Sari (Lux Investments) in exchange for no consideration.

On November 30, 2003, P&G Investments Ltd (an Irish non-resident entity,
hereafter referred as "Investments") contributed a 85% interest in Loreto Y Pena
Pobre SA CV to Lux Investments in exchange for no consideration.

We agreed that from a Luxembourg direct tax perspective, the above-mentioned operations
should be qualified as hidden contributions for direct tax purposes.
However, we received the transfer agreement with respect to the transfer of Loreto Y Pena
Pobre SA CV, which shows that the contribution of this Mexican company was structured
as a straight sale from P&G lnteramcricas LLC to P&G Manufactura in exchange for a
receivable, which receivable was contributed to P&G Manufactura in exchange for shares.
Therefore this transaction did not involve any of the Luxembourg entities of the P&G
Group. Therefore, please do not take into account the tax treatment of the transactions as
described in our Letter dated June 7, 2005.
The transfer agreement is attached as Appendix 1.

CASH SETTLED COVERED CALL OPTION

3.1

Background

In the framework of the Gillette acquisition, P&G International borrows money from third
parties and uses the proceeds to acquire stock of its ultimate parent company, the Procter &
Gamble Company ("P&G US"), a US fully taxable corporate entity. After a period of
several months, P&G International disposed or will dispose of the acquired stock to
Gillette. Shares are primarily exchanged for Gillette's non-US subsidiaries (the "Gillette
CFCs").

As part of the acquisition price of the P&G US shares, P&G International has to pay a
USD 0.3 registration fee per P&G US share to P&G US as remuneration for all formalities
and administrative tasks to be carried out in the US by P&G US in relation to the transfer
of the P&G US shares (the "Registration Fee").
I

(2)

As per P&G's internal analysis, P&G International is exposed to a potential stock decline
during the intended holding period before closing of the transaction, which will reduce its
ability to acquire the Gillette CFCs and I or impact the timing of the transaction.
To prevent such scenario P&G put in place a "cash settled call option" scheme. A copy of
the cash settled call option legal documentation is enclosed as Appendix 2.
3.2

Terms and conditions of the cash settled call option scheme

A Call Credit Spread Hedge is put in place every week, covering the amount of shares
purchased over the preceding week (except for the very first contract which needed to
"catch up" all purchases carried out by P&G International since January 28, 2005).
The pricing of the options is computed based on the volatility of P&G's shares during the
entire period covered. The amount of premium due are thus determined and fixed upfront
but paid only upon completion of the transaction (maturity) for each option.
The premium is computed on the basis of the volatility of the shares in the referenced
period but will not provide full coverage to P&G International.
The option is structured as an "in-the-money" call covering the downside risk plus an "outthe~money" call, which allows P&G International to recover the revaluation potential
beyond a certain threshold.
In this regard, the option covers the economic exposure of up to an 11 % reduction of the
stock price, while P&G International bears the exposure beyond 11 %. On the other hand,
the option is structured so that P&G International foregoes appreciation on the shares by up
to 11 % but keeps the revaluation potential beyond the referred threshold.
Based on the formula foreseen in the agreement, the "protection" band narrows, as the
expiration date gets closer as the exposure to the fluctuations in the share price shall be
reduced.
The payment of the premium is not made upfront upon signature of each option. Instead,
the aggregate premium due is determined and paid upon maturity of all the options. A net
one-shot cash-settlement mechanism is envisaged. The net payment is determined as a
result of the net premium to be received by P&G International minus those amounts, which
will be due by P&G International to its parent company on the options exercised by P&G.
To compensate the fact that income is deferred until maturity of the options, P&G US may
puy P&G International an interest rate on all premiums. Such interest due will be
consistent with the terms of the current bank facility (1 month Libor rate + a credit spread
of 15 bps).
According to the terms of the agreement the settlement currency is USD.

(3)

3.3

P&G US shares

As stated in point 3.1, P&G International exchanges P&G US shares (acquired as from
January 28, 2005) for the Gillette CFCs.
In the framework of this integration with Gillette, P&G International will keep at any time,
shares of P&G US whose acquisition price will be at least EUR 10 million as from January
28, 2005 until the last disposal of P&G US shares. This was confinned and approved by
the boa,-d of managers of P&G International held on October 3, 2005 in Luxembourg (see
Appendix 3). During the period from January 28, 2005 until today the lowest amount of
P&G US shares held by P&G International was 267,130 during the period from October
13, 2005 until October 25, 2005. The lowest trading price during that period was USD
54.62 corresponding to a total value ofUSD 14,600,472.

3.4

Tax treatment

3.4.J

Tax treatment ofthe Premium received by P&G International

The premium received by P&G International will be considered separately from the shares
to which it is related.
The final premium to be received by P&G International or to be paid by P&G International
is a "one-shot" net payment at the maturity of all the options. The mechanics of the
agreement are intended to allow P&G International to receive net premium income on all
the risks covered (even if P&G International may need to pay back "excess" premium and
give up part of the upside if the stock rises). However, from an accounting point of view,
the premium to be paid or the premium to be received by P&G International is will be
computed on a daily basis and booked separately.

The premium paid to P&G International should represent taxable income, which is not
related to income derived from the participations acquired and therefore will not qualify
for the Luxembourg participation exemption.

Jn the event that the aggregate result of the option represents a payment due by P&G
International to its parent, such payment remains a tax deductible item, such premium
being considered as arm's length.
Furthermore, any interest received by P&G International as compensation for the "late
payment" of the premium will be considered as taxable income at the level of P&G
International. Any interest payable by P&G international as compensation for the "late
payment" of the premium would be considered as deductible income at the level of P&G
International.

(4)

3.4.2

Based on the mechanics of the option, which is signed weekly - the applicable premium
being detennined for each specific option even if there is only a netted payment -, capital
gains or losses realized by P&G International is determined based on daily acquisition
price of the shares covered by each option (including the Registration Fee). Options are
entered into on a weekly basis. The stock price upon transfer of the shares to Gillette is the
actual price at the actual realization date of any capital gain or loss for P&G International.

3.4.3

Analysis on the application of the participation exemption to capital

gains arising upon exchange ofP&G US shares
3.4.3. l Capital gains

As mentioned under point 3.3 above, P&G International has committed itself to keep at
any time until the last disposal of shares in P&G US and for an uninterrupted period of at
least 12 months, shares in P&G US whose acquisition price will be at any time of at least
Euro 10,000,000. P&G International will keep track of this minimum holding requirement
on a daily basis, taking into account the. shares' acquisition price and the USD/EUR
exchange rate applicable on any given day.
Any capital gains arising from the disposal of P&G US shares by P&G International will
be exempted of Luxembourg corporate income tax and municipal business tax under
Luxembourg participation exemption regime provided P&G International have held at all
time until the last disposal of P&G US shares, P&G US shares with an acquisition cost of
at least 6 M Euro during an uninterrupted period of 12 months.
3.4.3.2 Tax treatment of losses realized upon exchange of P&G US
shares
Tax losses realized upon exchange of P&G US shares will be tax deductible for
Luxembourg tax purposes.
On the other hand, where any provision needs to be booked by P&G International for the
value of P&G US shares (notably at closing in June 30, 2005), such provision could be
subject to recapture against any capital gains realized if it is considered to be directly
linked to these shares.
Technically, in case of a final capital gain realized in future years, the provision will
remain deductible but the capital gain will be taxed to the extent that the provision was
considered deductible.
In case of a nonnal dividend being received in the same year in which such shares are
subject to a write-down upon closing, the write-down will remain tax deductible in so far
as it will not be related to that dividend distribution.

(5)

3.4.3.3 Feasibility of compensating capital gains and losses at the level of

P&G International
Based on all the scenarios described above, the implementation of the call option could
give rise to different scenarios at the level of P&G International.

~a_;"",~

Thus, the taXable income at the level of P&G International could be composed of: M~ .'.i-.,,.,,. "q~.
ti ~ [":~ :.~ $
1
the net premium to be received by P&G International.
\I

2~ ~;'r;J
~ rf.

; ~ ~

'- ~ ~

interest income received as a consequence of the deferral of the premium.

~?~

:.,.

6.

~.~v t>-: 1.?Vs": ~;,

~v
I~""
..
~S
t!l:.'l ''
,,1
""" ;;.-::;.:,.- .;t'"

In the ~bovc scenario, and as a matter of principle, all sources of taxable income at the
level of P&G International could be offset against losses and expenses in the following
terms:

3.5

losses realized on P &G US shares without limitation, i.e. even if there exists some
exempt gain on other P&G US shares;

any interest expense. It is to be noted that the interest expense could be recaptured
to the extent that it is accrued in the same year in which P&G International receives
dividends from participations financed with such funds. In the case of a capital gain
(even if exempt under the participation exemption rules) realized in future years the
capital gain realized will be taxed up to the amount of the interest expense deducted
in previous years (i.e. interest expense will remain deductible but the associated
capital gain will be taxed);

booked provisions for unrealized losses on P&G US shares. These amounts will be
deductible in the year in which they are recorded. An eventual capital gain in future
years will be taxed to the extent that the provision was deducted for tax purposes.

Net premium paid under the cash settled call option and any interest payable on
such net premium.
Situation as of October 13, 2005

On October 13, 2005, the merger between Gillette and P&G was effective. The P&G stock
price has been particularly volatile between the January 28, 2005 annowtcement and the
transfer of the shares on October 13, 2005. During the period covered by the equity hedge,
the stock price closed within a band of USO 52.16 (7/7/2005) and up to USD 59.46
(9/30/2005).
Please find enclosed to this letter a summary of the situation of P&G International as of
October 13, 2005 using the described above principles for the purpose of the computation
of the net result. The summary is attached as Appendix 4.

(6)

ACQUISITION BY P&G INTERNATIONAL OF GILLETTE AND P&G

ENTITIES

4.1

Facts

As described in our letter dated August 3, 2005, in the scope of the integration process with
Gillette, P&G International acquires entities of the P&G group (the " P&G CFCs"). P&G
International also acquires Gillette entities (the "Glllctte CFCs") either from P&G US or
from other Gillette entities.
4.1.1

Acquisition by P&G International of certain Gillette CFCs from P&G

us

As part of the integration process with Gillette, P&G International acquires certain Gillette
CFCs from P&G US entities and then drops down such Gillette CFCs to subsidiari,. ef;=: ~.
P&G International.
,,9#\ON l 'Es c.. .'~~
J~
- ?.\
/!.~
\?f'?
Such drop down is likely to be completed as follows:
i ':it
if~~~1 ":,'?, ..

o.., "

\~~:~~ Q~:.i;~ ~/!. /} '

The Gillette CFCs are contributed by P&G US entities to P&G Bc1muda;

"": ..:: S'lf;IEi'";, 'I'. .lP&G Bermuda sells these Gillette CFCs to P&G International against a debt Jey .::..:.::-Y
outstanding. The debt may be either interest bearing or interest free;

'- ~~ D; nPu~ . :.. ,.

The Gillette CFCs are contributed or sold by P&G International to other entities of
the group or to other already acquired Gillette CFCs.
4.1.2

Acquisition by P&G International of Gillette CFCs in exchange for

P&G US shares

As part of the integration process with Gillette, P&G International also acquires Gillette
CFCs directly from the Gillette group in exchange for P&G US shares.
P&G International may contribute or sell these Gillette CFCs to other entities of the group
or to other already acquired Gillette CFCs.
4.1.3

True Up Provision
)

At the time of the acquisition of most of the P&G/Gillette CFCs (collectively the "CFCs")
by P&G International from either Bermuda or Gillette and their subsequent drop down the
final value of the CFCs has not been determined.
In some of the acquisition agreements, the CFCs are therefore sold for an "Initial
Consideration Amount". As soon as reasonably practicable following the final
determination of the fair market value of the CFCs (the "Company Valuation"), the parties
shall calculate the Company Valuation Make-Up Amount (''True Up"), which amount shall
be equal to (A) the Company Valuation, less (B) the Initial Consideration Amount.

(7)

.....

With respect to the subsequent drop down of the CFCs by P&G International, such drop
down is carried out either as a sale (in exchange for a note) or as a contribution to share
capital/share premium. To the extent the acquisition agreement contained a True Up
provision the subsequent contribution I sale agreement with respect to the CFC in question
generally contains similar valuation adjustment language.
4.2

Tax treatment
4.2.1

Gains on drop down ofthe CFCs

Provided that P&G International completes the transfer of the CFCs down to another entity
of the P&G Group or to another Gillette entity within 6 months as from their acquisition,
their transfer at their acquisition price will be considered at arm's length.
In such a case, no capital gain or Joss will arise from the drop down of the CFCs from a
Luxembourg tax point of view.
4.2.2

Valuation

As stated above (point 4.1.3) the valuation of the CFCs may not be final at the time of their
acquisition by P&G International.
An adjustment provision is thus generally inserted in the acquisition agreement entered
into by P&G International and the transferring entity as well as in the agreement with
respect to the subsequent drop down of the CFCs, if any.

4.2.2. l .Sale by P&G International

In case of a sale by P&G International of the CFC to another entity of the P&G group or to

another Gillette entity, a True Up adjustment provision is as mentioned likewise generally

inserted in the related agreements between P&G International and the acquiring company
of the P&G group (or possibly a Gillette entity).
Provided there is a True Up provision in both the acquisition agreement (i.e. the acquisition
by P&G International from Gillette or Bermuda) and the sale agreement (i.e. the sale by
P&G International to the acquiring company) any subsequent value adjustment under the
Company Valuation should not trigger Luxembourg tax but only result in balance sheet
adjustments of the acquisition/sale price for the CFC and the corresponding amount of the
note.
In case there is no True Up provision in any sale agreement, the Luxembourg tax treatment

for direct tax purposes will be the same as the tax treatment described below when there is
no True Up adjustment for the contribution of CFCs.
..,~~ ...
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(8)

4.2.2.2.Contribution by P&G International

No True Up adjustment for the contribution of the CFCs

In case of a contribution by P&G International to another entity of the P&G group or to

another Gillette entity, which is not contain a True Up provision, any part of the fair
market value as detennined under the Company Valuation in excess of the value used upon
the contribution to the acquiring company of P&G group or to another Gill~tte entity will
be considered as a hidden contribution to the acquiring company for 'direct tax purposes
since it meets the following characteristics:

direct granting of funds;

to a related party;
without consideration (except a potential increase of the return of the shares).

The hidden contribution will have only a balance sheet effect at the level of P&G
International by increasing the value of its participation in the acquiring company.
On the other hand, any negative difference between the fair market value as determined
under the company valuation and the value used upon contribution to the acquiring
company of the P &G group or Gillette entity will be considered as a hidden dividend
distribution by the acquiring company to P&G International.
Such hidden dividend distribution will be tax exempt in Luxembourg provided that the
conditions of the participation exemption are met (i.e. the 12 months holding period and a
participation of at least 10% or with an acquisition price of at least EUR 1.2 million).

True Up adjustment for the contribution of the CFCs

For some of the C FCs there is also a valuation adjustment upon the contnbution of the
CFCs down the chain.
Such adjustment is dealt with (for example) as follows:

If the final value of the CFCs shares is higher than the estimated one used for the
contribution of the CFCs shares to be made by P&G International: either the value
of share premium would be adjusted or new shares would be issued.

If the final value of the CFCs shares is lower than the estimated one used for the
contribution of the CFCs shares to be made by P&G International, P&G
International would pay the balance in cash or the CFCs entity would have its
capital reduced.

Both options above should not trigger Luxembourg tax, but only an adjustment of the
original acquisition cost. There would be no profit or loss from an accounting point of
view.

(9)

(i:ONVERSION/LIQUIDATION OF CERTAIN SUBSIDIARIES OF P&G

INTERNATIONAL

5.1 Facts
Certain Gillette CFCs and/or P&G CFCs acquired by P&G International might change
their legal forms into an LLC, which might be considered as a transparent entity for
Luxembourg tax purposes and I or be liquidated.
5.2 Tax treatment
Provided that the conversion of the Gillette CFCs and the P&G CFCs into entities having
another legal form or their liquidation is completed within 6 months as from their
acquisition by P&G International, their conversion or I and liquidation at their acquisition
price will also be considered at arm's length.

DISTRIBUTION TO P&G INTERNATIONAL

6.1 Facts
Certain Gillette CFCs and P&G CFCs acquired by P&G International make dividend
distributions and/or repayment of share capital, share premium, or cancellation of shares
(in cash or in kind) to P&G International within a short period of time as from their
acquisition by P&G International.
Such distributions mostly consist of shares in other Gillctte/P&G CFCs, which CFCs might
be contributed further down the chain.

6.2 Tax .treatment

6.2. I Dividends
Such distribution to P&G International within a short period of time would either be
considered as a "pre-acquisition" dividend or be taxed at the level of P&G International.
In case where such distributions would be considered as a "pre-acquisition" dividend, it
would entail a reduction of the acquisition cost of the Gillette or P&G CFCs distributing
the dividend so that such distribution would have only balance sheet effect from a
Luxembourg accounting and tax point of view and no tax. would be due on the dividend
received by P&G International.

(10)

In case such distribution would be taxable at the level of P&G International, such taxable
distribution income would be offset by a corresponding write-down in the value of the
participation booked by P &G International as a consequence of the distribution of
dividends.

6.2.2 Capital Gains

As mentioned under point 4.2. l above, whether such distribution would be treated as a preacquisition dividend or not, provided that P&G International completes the transfer of the
P&G CFCs and Gillette CFCs down to another entity of the P&G Group or to another
Gillette entity within 6 months as from their acquisition, their transfer at their acquisition
price, talcing into account any dividend received, will be considered at arm's length.
As a consequence, no capital gain or loss would arise from the drop down of Gillette CFCs
entities from a Luxembourg tax point of view.

ALLOCATIONS TO THE US FINANCE BRANCH OF P&G

INTERNATIONAL

7.1

Allocation of a "profit tran.sfer claim" in the scope of the German integration

step plan

On October 13, 2005, in the scope of the Gennan integration step plan, P&G International
exchanged P&G US shares with Gillette Beteiligungs (as described under point 4 above)
for:
Shares of Gillette Berlin Holding GmbH,

Shares of Gillette Verwaltungs GmbH, and

for a ''profit transfer claim" (denominated in Euros) towards each of these above
companies. Such profit transfer claim value would vary with profits of Gillette
Berlin Holding GmbH and Gillette Verwaltungs GmbH in the year 2005. The
acquisition value was estimated to be as close as possible to the final value.

P&G lnternationa1 confirmed, during its board meeting held in Luxembourg on December
6, 2005 (see Appe ndix 5), to allocate the "profit transfer claim" denominated in Euros
towards Gillette Verwaltungs GmbH and Gillette Berlin Holding GmbH to the US branch
of P&G International as of the date of their acquisition, i.e. as of October 13, 2005.
The allocation of such profit transfer claims by P&G International to its US branch will not
raise any Luxembourg adverse tax consequence.

(11)

7.2

Allocation of a GBP loan to Procter & Gamble Holdings (UK) Limited in the
scope of the UK integration step plan

On November 7, 2005, P&G International sold to Procter & Gamble Holdings (UK)
Limited the shares of Gillette Industries Limited for an amount of GBP 238,436,017.
In this respect, Procter & Gamble Holdings (UK) Limited entered into a loan agreement,
on November 7, 2005 with P&G International for an amount up to but not exceeding GBP
337,866,374. The initial borrowing corresponded to GBP 238, 436, 017.
P&G International confirmed, during its board meeting held in Luxembourg on December
6, 2005 (see Appendix 5), to allocate the note receivable of an amount of GBP
238,436,017 held by P&G International against Procter & Gamble Holdings (UK) Limited
to the US Finance branch of P&G International as of November 7, 2005.
The allocation of such the GBP 238,436,017 note receivable by P&G International to its
US branch does not raise any Luxembourg adverse tax consequence.

FINANCING OF P&G INTERNATIONAL AND ADDITIONAL FINANCE

"VEHICLES"

8.1. Financing of P&G International

P&G International continues to have an important holding activity but is also engaged in
financing activity and commercial activities.
P&G International is financed partly by external and internal debt and partly by equity.
Due to the high number of transactions carried out by P&G International as from July, 151
2005 and to be carried out in the following months and considering the short timing
involved, it is very difficult for P&G International to k<..-ep track of the financing of its
assets on an historical basis.
For the sake of clarity and for simplification purposes, for corporate income tax, municipal
business tax and net wealth tax purposes, debt financing of P&G International will be
deemed as from July 1, 2005 to finance by priority first other assets than participations
qualifying for the participation exemption regime, then participations qualifying for the
participation exemption regime and then the US branch assets.
Internal debt financing will be allocated as described above by priority to external debt.
8.2. Possible additional finance vehicles

Procter & Gamble would like to issue Commercial Papers and Bonds through the
Luxembourg entities.

(12)

In order to avoid converting P&G International into an SCA, one or two new. Luxembourg
SCAs will likely do the issue of Commercial Papers and Bonds.
.
In this respect, P&G International, P&G Lux Global and a newly incorporated Sari held by
P&G Lux Global will incorporate the SCAs.
One SCA would issue Commercial Papers (private offering) beginning mid February 2006
and the second SCA would issue bonds and commercial papers beginning mid July 2006.
The SCAs would on-lend the proceeds of the Commercial Papers and Bonds to P&G
International to ultimately refinance the existing P&G International revolving credit
facility towards the bank. The financing activity carried out by the new SCAs will likely
be remunerated on the basis of a fixed fee.
Please note that the financing structure of the SCAs would be further discussed in a
subsequent letter.

Procter & Gamble Luxembourg Finance S.a r.J.

On June 15, 2001, the share capital of Procter & Gamble Luxembourg Finance S.a r.1, a
Luxembourg societe re.5ponsabilite /imitee, (hereafter "P&G Finance") was converted
into CAD. Most of the assets and liabilities of the company are denominated in CAD.

As from the fiscal year starting on July 1, 2000, P&G Finance has its accounts
denominated in CAD.
The functional currency of P&G Finance for Luxembourg tax purposes is as from July 1,
2000CAD.

10

BRAZILIAN INTEGRATION PLAN

10.1. Facts
As described in the letter from Deloitte & Touche dated August 9, 2000 as approved by
you on September 21, 2000, the Procter & Gamble Company (P&G US) incorporated P&G
Finance. P&G Finance acquired from P&G US a 99.99% interest in a Canadian
Partnership, P&G Finance Canada (the "Canadian Partnership") against debt (the
"Loan").
As confirmed in the mentioned above letter dated August 9, 2000, the Canadian
Partnership is considered as transparent from a Luxembourg tax point of view.
As a result, P&G Finance is deemed to hold directly 99.99% of the assets and liabilities of
the Canadian Partnership. As part of the assets of the Canadian Partnership, P&G Finance

(13)

currently owns three notes for a total amount of approximately CAD 1,005,000,000
toward~ P&G Inc. (Canada), a Canadian fully taxable corporate entity (the "Receivables").
The amount of the Loan was higher than the amount of the Receivables. The amount of the
Loan is indeed CAD 1,447,072,858.39. Part of the difference between the Loan and the
Receivables is due to interest compound on the Loan while interest was paid on the
Receivables.
In the scope of the Brazilian part of the integration of P&G with Gillette the following
restructuring steps were already completed or are contemplated during 2006:
10. I.I Steps

Step 1: P&G US converts the Loan of approximately CAD 1,447,072,858.39

against P&G Finance, into another debt instrument for a total amount of CAD
1,005 million, with the same nominal value and currency as the Receivables
between the Canadian Partnership and P&G Inc. (Canada) (hereafter "Instrument
2").

Part of the difference between the Loan amount and the Receivables amount
corresponding to CAD 245 million is converted into a separate note (the "Straight
Note").

The remaining amount of the difference between on the one hand the Loan
principal amount and on the other hand the Straight Note and the Receivables
principal amount, i.e., CAD 197,072,858.39 is waived by P&G US to the benefit of
P&G Finance;

Step 2: P&G International invests approximately USO 1.163 billion in Gillette

America Holding BV (hereafter "GLAH") through the issuance by GLAH of two
debt instruments of respectively CAD 1,005 million ("Instrument 1") and of USD
310,500,000 ("Instrument 1 bis");

Step 3: P&G International repays a portion of its Preferred Equity Certificates to

P&G Global Holdings Ltd. (Bermuda) in exchange for a CAD 1,005 million debt
instrument ("Instrument 3");

Step 4: On December 7, 2005, GLAH purchases from P&G US the shares of P&G
Finance, the straight note and the Instrument 2 of CAD l,005 million (issued by
P&G Finance in step l above), in exchange for cash;

Step 5: On December 15, 2005, P&G International purchases GLAH in exchange

for P&G US stock;

Step 6: P&G Finance repaid on January 6, 2006 the outstanding amount of the
Straight Note including accrued interest, i.e., approximately CAD 245.7 million.

(14)

Step 7: In 2006 P&G International converts Instrument I bis (i.e., USO

310,500,000) into equity of OLAH.

10.1.2.

Status at the end ofthe restructuring

At the end of the restructuring, the situation would be as follows:

Instrument 3: P&G Global Holding Ltd (Bermuda) holds a CAD 1,005 million debt
instrument against P&G International;

Instrument l: P&G International holds a CAD 1,005 million debt instrument

against GLAB, its direct wholly owned subsidiary;

Instrument 2: OLAH holds a CAD 1,005 million debt instrument against P&G
Finance;

P&G Finance still holds the CAD 1,005 million Receivables against P&G Inc
(Canada), a company indirectly owned by P&G International.

10.2 Qualification of instruments 1, 1 bis, 2 and 3 as debt instruments

10.2.1 Qualification ofinstruments 1, 1 bis, 2 and 3 as debt instruments

A copy of the instruments I, I bis, 2 and 3 are attached as Appendix 6.
Instruments I, 1 bis, 2 and 3 have the following characteristics:

These instruments have a yearly fixed yield equal to the product of the applicable
rate and their par value;

The interest rate is an arm's length rate. In particular:

Instrument I bears an interest rate of CAD Libor plus 22 basis points.
Instrument I bis bears an interest rate ofUSD Libor plus 25 basis points.
Instrument 2 bears an interest rate of CAD Libor plus 22 basis points.
Instrument 3 bears an interest rate of CAD Libor plus 19 basis points.
The return for any accrual period shall not exceed the amount of the issuer's
retained earnings derived for such accrual period.
The par value for each outstanding instrument plus the accrued and unpaid yield is
only due and payable by the issuing company of the instrument, to the extent that
the issuer of the instrument towards which the issuing company is the holder, has
met its corresponding obligations (Instrument l bis does not include this provision).

(15)

The interest isdue and payable only to the extent declared by the managers of the
issuer and provided that the company does not become insolvent after makin.~.~.c;;J\,

payments;
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These instruments have a maturity period of 49 years;
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These instruments have a voluntary redemption clause;

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whereas the repayment of instruments l, 1 bis and 2 is mandatorily with ordinary

shares of the issuer;

These instruments are junior to all present and future debts and liabilities of the
borrower, whether secured or unsecured, and senior to the shares of capital stock of
the borrower;

Any unpaid interest bears interest;

Holders of these instruments arc not entitled to any voting rights;

Holders of these instruments are not entitled to participate in the surplus profits of
the borrower upon liquidation;

These instruments may not be transferred without the express prior written consent
of the issuer and of each shareholder of the issuer.

10.2.2.

Tax treatment

Based on the above-mentioned characteristics, instruments 1, 1 bis, 2 and 3 will be

considered and treated as debt for Luxembourg tax purposes. Indeed, as the explanatory
note to the income tax reform lawn. 571of1955 (Projet de Loi sur Art. 144, today Art. 97
LITL, on income from capital, page 294 -295) points out, the distinction between debt and
equity must be made on the basis of the instrument's characteristics from an economic
point of view. In particular, the main economic features that characterise an instrument as
debt are:

the fact that the instrument gives right to an interest being a percentage of the
nominal amount of the instrument; as opposed to a participation in the company's
capital that gives right to a percentage of the company's profits; and

the privileged ranking over the company's shares, i.e. the principal amount of the
loan is repayable before the reimbursement of the company's share capital.

Consequently, instruments l, 1 bis, 2 and 3 will be qualified as debt instruments for net
wealth tax, corporate income tax and municipal business tax purposes and the interest
payable by P&G Finance (Instrument 2) and by P&G International (Instrument 3) will be
tax deductible.

(16)

\\

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10. 2. 3 Luxembourg withholding tax on certain debt instruments

Both article 146 (1)-3 and article 164 (2) LITL provide for the application of a withholding
tax upon payment of interest arising from profit participating bonds or other similar
securities. Indeed, interest payment may be subject to a 20% withholding tax in
Luxembourg if the following conditions are met:

the loan is structured under the form of bonds or other similar securities; and

aside from the fixed interest, a "supplementary interest varying according to the
amount of distributed profit is paid, unless said supplementary interest is stipulated
simultaneously with a momentary decrease of the fixed interest.

Both instruments 2 and 3 bear a fixed interest based on the principal amount of the loan.
Consequently, as said interest does not depend on the distributed profit of P&G FiQE.Ul~' ~,,.,
nor P&G International, no withholding tax will apply on the interest payment.
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I0.3. Back-to-back positions of P&G International and P&G Finance

10.3.1.

Back-to-back position ofP&G International

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At the end of the restructuring, P&G International is the hold~ of Instrument 1 g n~,,.
GLAH, i.e., of CAD 1,005 million.
P&G Global Holdings Ltd (Bermuda) holds a debt CAD 1,005 million Instrument 3 on
P&G International. Instruments 1 and 3 will have the same features.
Since the CAD 1,005 million lent by P&G Global Holdings Ltd (Bcmmda) to P&G
International are on lent to GLAH, P&G International will be regarded being in back-toback position up to I 00% of this amount.
Taking into account the fact that P&G International will not bear any default risk, nor
foreign exchange risk (as both instruments are denominated in CAD) on these instruments
and that the principal amounts borrowed and on lent by P &G International will match, the
company will be deemed to realize an appropriate and acceptable profit with respect to the
transfer pricing policy and articles 56 and 164 (3) LITL, provided that the annual net
margin (after deduction of related expenses) realized by P&G International from its backto-back position amounts to 0.03%.
This margin will be determined on the annual average outstanding amount of Instrument I
including compounded interest and will be included in the taxable basis of P&G
International.
As mentioned above, as instrument 3 is treated as debt instruments and the interest is based
upon the principal, the interest paid on instrument 3 will not be subject to withholding tax
in Luxembourg. Moreover, the interest paid will be fully deductible for P&G International
as long as this company realizes the aforementioned margin on this back-to-back activity.

{17)

10.3.2.

Back-to-back position ofP&G Finance

At the . end of the restructuring, GLAH is the holder of a CAD 1,005

instrument (Instrument 2) against P&G Finance.
P&G Finance holds, through the Canadian Partnership, which is a transparent entity from a
Luxembourg tax perspective (please refer to Deloitte's letter dated August 9, 2000
enclosed to this ATA), the Receivables of CAD 1,005 million note on P&G Inc (Canada)
(Instrument 2 and the Receivables are matching in terms of amount and of currency).
Since the CAD 1,005 million lent by GLAH to P&G Finance are on lent to P&G Inc
(Canada), P&G Finance will be regarded being in back-to-back position up to 100% of this
amount.
Taking into account the fact that P&G Finance will not bear any default risk, nor foreign
exchange risk (as these instrument and loan are denominated in CAD) on these instrument
and note and that the principal amounts borrowed and on lent by P&G Finance will match,
the company will be deemed to realize an appropriate and acceptable profit with respect to
the transfer pricing policy and articles 56 and 164 (3) LITL, provided that the net margin
(after deduction of related expenses) realized by P&G Finance from its back-to-back
position amounts to 0.03%.
This margin will be detennincd on the annual average outstanding amount of the
Receivables, including compounded interest, and will be included in the taxable basis of
P&G Finance.
As mentioned above, as Instrument 2 is treated as debt instruments and the interest is based
upon the principal, the interest paid on Instrument 2 will not be subject to withholding tax
in Luxembourg. Moreover, the interest paid will be fully deductible for P&G Finance as
long as this company realizes the aforementioned margin on this back-to-back activity.
10.4. Tax treatment of the partial waiver of debt in step 1
As described under point 10.1.l above, P&G US waives part of the Loan it owns toward
P&G Finance.
The Loan waiver will be taxable in the hands of P&G Finance up to the amount of losses
available, and not subject to recapture, to such company at the end of the current
accounting year (June 30, 2006) plus the amount of the arm's length agreed annual margin
agreed that P&G Finance should have realized on its back-to-back financing activities
pursuant to the letter dated August 9, 2000 (see Appendix 7).
As a result, such amount of the waiver will be offset by the losses incurred by P&G
Finance, and a minimum spread agreed upon by the Luxembourg tax authorities for the
back-to-back activities carried out by P&G Finance since 2000 would be included in the
taxable basis of P&G International.

(18)

The remaining amount of the waiver, should there be any, would be considered for
Luxembourg direct tax purposes as a hidden capital contribution not subject to corporate
tax at the level of P&G Finance.
For clarity purposes, P&G Finance will draft a tax balance sheet in which it would allocate
the amount of such hidden contribution to a reserve account.
L?~ .......
" :.\\ON D

#
/511

GILLETTE I P&G LLCs ENTITIES

11.1 Facts

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In the scope of the integration with Gillette, it is contemplated that certain P&G I 1 tmtc'
CFCs acquired by P &G International would either be LLCs or be converted into LLC
entities.

Moreover, it is also contemplated that P&G International would incorporate LLC entities.

11.2 Tax treatment of the LLC entities

Under Luxembourg domestic tax law, no specific provisions exist to determine whether an
entity established under foreign laws may be considered as transparent or non-transparent
entities for Luxembourg tax purposes.
In order to assess the Luxembourg tax treatment of a foreign entity, the characteristics of
this entity should thus be compared to the characteristics of similar entities governed by
Luxembourg law (e.g., Societe en Norn Collectif, Societe en Commandite Simple or
Societe Responsabilite Limitee).

The question arises whether P&G I Gillette LLCs should be treated as tax transparent for
Luxembourg tax purposes.
Our further analysis of the tax situation of P&G I Gillette LLCs from a Luxembourg tax
perspective is based on the Partnership agreement of P&G Australia Holding LLC
(attached to this Jetter in Appendix 8).

Provided that the articles of incorporation of other P&G I Gillette LLCs are similar to those
of the P&G Australia Holding LLC, the Gillette I P&G LLCs follow the same tax
treatment as P&G Australia Holding LLC.
From the analysis of the partnership agreement of P&G Australia Holding LLC, it appears
that P&G Australia Holding LLC should be compared to a Luxembourg Societe en
Conunandite Simple ("SCS").
We base our analysis on the following provisions included in the P&G Australia Holding
LLC incorporation deed (hereafter referred as "the Company"):

( 19)

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Under the partnership agreement, all net income and net losses of the partnership shall be
shared by and allocated to the Member in proportion to its capital contribution.
Management of the entity

In a SCS, in principle the general partner or a third party manages the partnership affairs
and engages and represents the partnership towards third parties.
According to the partnership agreement, the management of the Company is carried out by
the Member. As manager, the Member shall have the power and authority to do any and all
acts necessary or convenient for the affairs of the partnership.

I/

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In an SCS, profits and losses arc shared proportionally according to each partner's
contribution, unless there is a contrary provision in the SCS agreement. Luxembourg law
does not pennit the establishment of a partnership in which a single partner is liable for all
losses or gets all profits.

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Transfer of partnership interest

Interest in an SCS may only be transferred with the unanimous consent of the partners,
unless the by-laws provide otherwise.
Similarly, under the partnership agreement no substitute or additional Members shall be
admitted to the Company except with the consent of the Member.
Additionally, the following facts are also in favor of characterizing the Company as a tax
transparent entity for Luxembourg tax purposes:

There is no minimum capital required. Indeed, the cWTent share capital is USO 100
and the Member is not required not make any additional capital contribution.

The Company shall dissolve upon the first to occur of the following: (i) the written
consent of the Member, (ii) the bankruptcy, dissolution or any other event which
terminates the continued membership of the Member, (iii) the entry of a decree of
judicial dissolution.

However, contrarily to a Luxembourg SCS where there are (i) one or several partners who
are jointly and severally liable for the obligations of the partnership and (ii) one or several
partners whose liability is limited to the amount of their contribution in the partnership,
under the Partnership agreement, this Members shall not have any liability for the
obligations or liabilities of the Company except to the extent provided in the Ohio revised
Code.
Nevertheless, on the basis of the above characteristics, we come to the conclusion that
P&G Australia Holding LLC has most of the features of a Luxembourg SCS.

(20)

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ConsequentIy, accord.mg to arttc
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a personality apart from its partner for Luxembourg tax purposes.
As a result, P&G Australia Holding LLC will be considered as tax transparent for
Luxembourg tax purposes. The shareholder of such entity (i.e. P&G International) will be
deemed to hold directly the assets and the liabilities of the partnership.
Moreover, as referred above, the same tax treatment will apply to P&G I Gillette LLCs
which would have the same Partnership agreement as P&G Australia Holding LLC.
Finally, the tax treatment of the acquisition by P&G International of Gillette and P&G
entities (see section 4 and 5) also apply either in case these acquisitions would be made by
an LLC entity or in case the shares of the Inc/LLC would be acquired by P&G
International and then contributed to a subsidiary of P&G International.

12

LIQUIDATION OF P&G LUXEMBOURG INVESTMENT SCS

Within the scope of the restructuring completed in June, as described in our letters dated
June 7, 2005 and August 3, 2005, Procter & Gamble has since the beginning of June 2005
been in the process of liquidating P&G Luxembourg Investment SCS (hereafter referred t0
as "P&G Lux SCS").
As part of this process, the following transactions were completed:
On June 27, 2005, the general partner interest of P&G Lux SCS was
transferred to non Luxembourg resident entities by way of the
liquidation of P&G Luxembourg Investment General Management Sarl;
On June 28, 2005, P&G Lux SCS transferred its participations in P&G
Ukraine, P&G Kazakhstan, P&G Mfg Ukraine and Gala Marketing to
P&G International;
On June 29, 2005 P&G Lux SCS transferred its substance (employee,
office renting agreement, contracts...) to P&G International;
On June 29, 2005, P&G Lux SCS transferred its entire interest (PECS
and shares) in P&G Int?rnational to P&G Global Holdings Bennuda.
On September 6, 2005 P&G Lux SCS transferred its entire interest in
P&G Global Holdings Bcnnuda to its partners in exchange for two nonintercst bearing loan notes and the assumption of certain existing
liabilities by said partners.

(21)

The transfer of the activity of P&G Lux SCS and the transfer of its general partner interest
to non-Luxembourg entities as described above, and confinned in the letters of June 7,
2005 and August 3, 2005, involved a deemed dissolution of tho Luxembourg permanent
establishment of the partners of P&G Lux SCS, i.e. P&G Lux SCS would be considered as
not having a commercial activity in Luxembourg and the Luxembourg pennanent
establishment of the partners of P&G Lux SCS ceased to exist at the latest from June 29,
2005.
The only remaining assets at the level of P&G Lux SCS are the receivables resulting from
the September 6, 2005 transaction and minor ancillary rights according to previous
acquisition agreements relating to participations already disposed off.
P&G Lux SCS is expected to be finally liquidated shortly. The final liquidation will have
no Luxembourg direct tax consequences.

(22)

fJR/cEWA1fRJ-Jousf[roPERS I
Taking into account the importance of the above for our client, we would greatly
appreciate your written confirmation of the above treatment.
We remain at your entire disposal should you require any further infonnation.
We thank you in advance for the attention you will pay to our request.
Yours faithfully,

{
For approval
Le prepost11 bureau
d'impositio1 Sociites VI
Mari s Kolrl
Luxembourg,

oj. ot

zoo6

Enclosure:
Appendix l: Transfer agreement o Loreto Pena Pobre SA CV.
Appendix 2: Cash settled covered . tion
Appendix 3: Copy of the Board of . anagers of P&G International dated Qctober 3,
2005
Appendix 4: Numeric situation in P G International as of October 13, 2005
Appendix 5: Draft copy of the Board of Managers of P&G International dated
December 6, 2005
Appendix 6: Instrument I, I bis, 2 and 3
Appendix 7: Letter Dated August 9, 2000
Appendix 8: LLC agreement of P&G Australia Holding LLC
This ra:c oxreemcnt wos prepared for Procter & Gamble group ("the Cfient ""), and is bnsed

011

the facts as presented to

Pricewotcr/1ouseCoopen Sari as at tire date of this feller. 711ls tax agreement s/Jould not be distributed or otherwise made moi/ab/e, or

be rtfl~d 11pon by any other partyfor any other purpose, without the express wrilltn aulf1orisa1/on ofPricewotcr/JouseCoo~rs Sar(, save
only 1"'11 no/\Vitlrstondlng anythl11g Jo tire comrary lite client and each of its tmployttlt!S. representati~s. or other agmts moy discfose 10
011y 011d all persons. without limitation of any kind, the US Federal i11comc to.T treatment and US Federal income tax .rtmc1ure of tire
tra11sactio11{s) related to 011y US Federal income tax advice. n1is tax analysis was prepared with onfy tile cfie111's interests in mind. a11d
was 1101 pfrmntd or carried 0 111 In contempfa//011 of a11y use by any 01/Jer party. l'rlcewaterlto11seCoopen Sar(, its part11ers, employets
011d or ag1nts, 11tlthtr owe nor accept any duty ofcart or any rtspoiulblfity to any otfter parly. whether In contract or In ion (incf11dilrg
111itho111 /imitation. negllgMct or breach ofstatutory duty) l101t"e1-er arising. a11d sha(( not be I/obit in rcsfNcl of011y loss, domoge or
expe11se ofwhatever nature 111/ilclr is caused to any other party.

(23)

Appendix 6
Articles of incorporation of P&G Nordic LLC and P&G Eastern Europe
LLC

(23)

(24)

LIMITED LIABILITY COMPANY AGREEMENT

OF
PROCTER & GAMBLE NORDIC, LLC
This Limited Liability Company Agreement (this "Agreement") of Procter &
Gamble Nordic, LLC is entered into as of the 15th day of June, 2005 by The Procter & Gamble
Company as sole member (the "Member").
The Member hereby forms a limited liability company pursuant to and in
accordance with the Ohio Revised Code, as amended from time to time( 1705.01, ~ .g.) (the
"Code"), and hereby agrees as follows:
I.
Name. The name of the limited liability company fom1cd hereby 1s
Procter & Gamble Nordic, LLC (the "Company").
2.
Pumose. The Company is fonned for the object and purpose of, and the
nature of the business to be conducted and promoted by the Company is, engaging in any lawful
act or activity for which limited liability companies may be fom1ed under the Code.
3.
Registered Office; Registered Agent. The registered office of the
Company in the State of Ohio is at 1300 East Ninth Street; Cleveland, Ohio 44114 and the
registered agent for service of process on the Company in the State of Ohio at such address is CT
Corporation System.
4.

Member.

The name and the business, address of the Member 1s as

follows:
Address
The Procter & Gamble Company One Procter & Gamble Plaza
Cincinnati, Ohio 45202
5.
Management of the Company. The business and affairs of the Company
shall be managed by the Member. The Member shall have the power and authority to do any and
all acts necessary or convenient to or for the furtherance of the purposes described herein,
including all powers and authorities, statutory or otherwise, possessed by members of limited
liability companies under the laws of the State of Ohio. ln connection with the foregoing, the
Member is hereby authorized and empowered to act through its officers and employees and other
persons designated by the Member in carrying out any and all of its powers and authorities under
this Agreement, and to delegate any and all powers and authorities that the Member possesses
under this Agreement to any of its officers and employees and to any other person designated by
the Mcmhcr. Jennifer Buse. Joseph Stegbauer, Chris Walther, Steven Jemison, Linda Rohrer,
Susan Felder, Timothy McDonald, Debbie Snellgrove, Patrick Vannimmen, Jeanlouis Geyr and
C. Becket Sorce are hereby designated as authorized persons to execute, deliver ant.I file the
articles of organization of the Company (and any amendments and/or restatements thereof) and

NY I 1111

7 1 ~ 1'lQl

any other certificates (and any amendments and/or restatements thereof) necessary for the
Company to qua Ii fy to do business in a jurisdiction in which the Company may wish to conduct
business.
6.
Dissolution. The Company shall dissolve, and its affairs shall be wound
up upon the first to occur of the following: (a) the written consent of the Member, (b) the
bankruptcy or dissolution of the Member or the occurrence of any other event which tenninates
the continued membership of the Member in the Company, or (c) the entry of a decree of judicial
dissolution under Section 1705.47 of the Code.
7.
Capital Contributions. The Member has contributed the following
amount, in cash, and no other property, to the Company: $ 100.
8.
Additional Contributions.
additional capital contrihution to the Company.

The Member 1s not required to make any

9.
Allocation of Profits and Losse!!. The Company's profits and losses shall
be allocated in proportion lo the capi tal contribution of the Member.
I0.
Distributions. Distributions shall be made to the Member at the times and
in the aggregate amounts determined by the Member. Such distributions sha!I be allocated to the
Member in the same proportion as its then capital account balance.
11.
Assignments. The Member may assign in whole or in part its limited
liability company interest. If the Member transfers all of its interest in the Company pursuant to
this Section, the transferee shall be admitted to the Company upon its execution of an instrument
signifying its agreement to be bound by the tcrrns of this Agreement. Such admissions shall be
deemed effective immediately prior to transfer, and, immediately following such admission, the
transferor Member shall cease to be a member of the Company.
12.

Resj~tion.

The Member may resign from the Company.

13.
Admission of Additional or Substitute Members. No substitute or
additional members shall be admitted to the Company except with the consent of the Member.
14.
Liab ility of Member. The Member shall not have any liability for the
obligations or liabilities of the Company except to the extent provided in the Code.
15.
Governing Law. This Agreement shall be governed by, and construed
under, the laws of the State of Ohio, all rights and remedies being governed by said laws.

[Signature page follows]

:-n I llJI

71Zl'lO2

-2-

J LN- 14-2005

17:27

PROCTER

~D

G.''1BLE

5139831472

P.15

IN WlTNESS WHEREOF, the undersigne.d, intending to be legally bound

hereby, has duly executed th1s Limited Liability Company Agreement as of the date and year
first aforesaid.

l'IYLIBI 712193 2

,.

''

"'\'-

,t

LIMITED LIABILITY C OMPANY AGREEMENT

OF

PROCT E R & GAMBLE EAST E RN E URO PE, I.LC

This Limited Liabi lity Company Agreement {this "Agreement") of Procter &
Gamble Eastern Europe, LLC is entered into as of the 15th day of June, 2005 by The Procter &
Gamble Company as sole member (the "Member").
The Member hereby forms a limited liability company pursuant to and in
accordance with the Ohio Revised Code, as amended from time to time{ 1705.01, ~~.)(the
"Code"), and hereby agrees as follows:
Name. The name of the limited liability company fonned hereby is
Procter & Gamble Eastern Europe, LLC (the "Company").
I.

2.
Purpose. The Company is fom1cd for the object and purpose ot: and the
nature of the business to be conducted and promoted by the Company is, engaging in any lawful
act or activity for which I imited liability companies may be formed under the Code.
3.
Registered Office; Registered Agent. The registered office of the
Company in the State of Ohio is at 1300 East Ni nth Street; Cleveland, Ohio 44114 and the
registered agent for service of process on the Company in the State of Ohio at such address is CT
Corporation System.
4.

Member.

The name and the business. address

or the

Member

IS

as

follows:
Add res~
The Procter & Gamble Company One Procter & Gamble Plaza
Cincinnati, Ohio 45202
5.
Man!!&,ement of the Company. The business and affairs of the Company
shall be managed by the Member. The Member shall have the power and authority to do any and
all acts necessary or convenient to or for the furtherancc of the purposes described herein,
including all powers and authorities, statutory or otherwise, possessed by members of limited
liability companies under the laws of the State of Ohio. In connection with the foregoing, the
Member is hereby authorized and empowered to act through its officers and employees and other
persons designated by lhe Member in carrying out any and all of its powers and authorities under
this Agreement, and to delegate any and all powers and authorities that the Member possesses
under this Agreement to any of its officers and employees and to any other person designated by
the Member. Jennifer Buse, Joseph Stegbauer, Chris Walther, Steven Jemison, Linda Rohrer,
Susan Felder, Timothy McDonald, Debbie Snellgrove, Patrick Vannimmen, Jeanlouis Geyr and
C. Becket Sorce are hereby designated as authorized persons to execute, del iver and file the
ilrticlcs of organization of the Company (and any amendments and/or restatements thereof) and

NYI IUI 7121')3 2

any other certificates (and any amendments and/or restatements thereof) necessary for the
Company to qualify to do business in a jurisdiction in which the Company may wish to conduct
business.
6.

Dissolution. The Company shall dissolve, and its affairs shall be wound

~ p upon the first to occur of the following: (a) the written consent of the Member, (b) the
bankruptcy or dissolution of the Member or the occurrence of any other event which terminates
the continued membership of the Member in the Company, or (c) the entry of a decree ofjudicial
dissolution under Section 1705.47 of the Code.
7.
Capital Contributions. The Member has contributed the following
amount, in cash, and no other property, to the Company: $100.
8.
Additional Contributions.
additional capital co.ntribution to the Company.

The Member is not requ ired to make any

9.
Allocat ion of Profits and Losses. The Company's profits and losses shall
be allocated in proportion to the capital contribution of thc Member.
10.
Distributions. Distributions shall be made to the Member at the times and
in the aggregate amounts determined by the Member. Such distributions shall be allocated to the
Member in the same proportion as its then capital account balance.
11.
Assignments. The Member may assign in whole or in part its limited
liability company interest. If the Member transfers all of its interest in the Company pursuant to
this Section, the transferee shall be admitted to the Company upon its execution of an instrument
signifying its agreement to be bound by the tem1s of this Agreement. Such admissions shall be
deemed effective immediately prior to transfer, and, immediately fo llowing such admission, the
transferor Member shall cease to be a member of the Company.
12.

Resignation. The Member may resign from the Company.

13.
Admission of Additional or Substitu te Members. No substitute or
additional members shall be admitted to the Company except with the consent of the Member.
14.
Liability of Member. The Member shall not have any liability for the
obligations or liabilities of the Company except to the extent provided in the Code.
15.
Governing Law. This Agreement shall be governed by, and construed
under, the laws of the State of Ohio, all rights and remedies being governed by said laws.

[Signature page follows]

NYLllll l lll<lJ

-2-

Jl..JN-ld- 2005

17:25

PROCTER

~D G~E

5139831472

P.08

lN WITNESS WHEREOF, the unden.igned, intending to be legally bound

hereby, h~ duly executed this Limited Liability Company Agreement as of the date 1md year

first aforesaid.
THE PROCTER & GAMBLE COMPANY

By~/
Nam;c.(-

~41'-Y

NYU81 71::!19J.:Z

.
.

Appendix 7
Luxembourg participation exemption regime

A.

Dividend income

Article 166 of the LJTL provides for the exemption of the dividends
condWons are ji1ljilled:The distributing company is:

if the following

- A collective entity falling under article 2 of the amended version of the Council
directive of 23 July 1990 on the common system of taxation applicable in the
case of parent companies and subsidiaries of different Member States
(90/435/EEC); or
- A Luxembourg resident capital company, which is fully taxable and does not
take one of the fonns listed in the Enclosure to the paragraph 10 of article
166 of the LITL; or
- A non-resident capital company that is fully liable in its state of residence to a
tax corresponding to the Luxembourg corporate income tax. Regarding this
condition, the Luxembourg tax authorities have set the rule that the foreign tax
must be assessed at a minimum rate of I 0,5% on a taxable basis determined
similarly to the Luxembourg one;

and

The beneficiary company is:

- A Luxembourg resident collective entity, which is fully taxable and takes one
of the forms listed in the Enclosure to the paragraph I 0 of article 166 of the
LITL; or
- A Luxembourg resident capital company, which is fully taxable and does not
take one of the forms listed in the above-mentioned Enclosure; or
- A domestic pem1anent establishment of a collective entity falling under article

2 of the amended version of the Council directive of 23 July 1990 on the

common system of taxation applicable in the case of parent companies and
subsidiaries of different Member States (90/435/EEC); or
- A domestic permanent establishment of a capital company that is resident in a
State with which Luxembourg has concluded a double tax treaty;
- A domestic permanent establishment of a capital company or of a cooperative
company which is resident in a European Economic Area (EEA) Member State
other than a EU Member State.

(25)

and
- At the date on which the income is made available, the beneficiary held or
unde1iakes to hold, directly, for an uninterrupted period of at least 12 months a
participation in the share capital of the subsidiary of at least I 0% or with an
acquisition price of at least EUR 1.2 million. If the participation is held through
a Luxembourg tax-transparent entity, this will be regarded as direct
participation proportionally to the interest held by the Luxembourg holding
company in the tax-transparent entity.
Expenses incurred during the year in which a dividend is received and which arc
connected to the exempt participation may only be deducted insofar as they exceed the
exempt dividend for the year in question.
Additionally, if a write-down in the value of the participation has been booked as a
consequence of the distribution of dividends, this write-down wil1 not be deductible up
to the amount of the exempt dividend.

B.

Withholding tax

Article 147 LITL provides for a withholding lax exemption m Luxembourg if the
following conditions are met:

The distributing company is:

- A Luxembourg resident collective entity, which is fully taxable and takes one of
the forms listed in the Enclosure to the paragraph 10 of article 166 LITL;

The entity receiving the dividends is:

- A collective entity falling under article 2 of the amended version of the Council
directive of 23 July 1990 on the common system of taxation applicable in the
case of parent companies and subsidiaries of different Member States
(90/435/EEC, hereafter the "Parent I Subsidiary Directive"); or
-

A Luxembourg resident joint-stock company, which is fully taxable and does

not take one of the forms listed in the above-mentioned Enclosure; or

A collective entity that is resident in a State with which Luxembourg has

concluded a double tax treaty and which is fully liable to a tax co1Tesponding to
the Luxembourg corporate income tax, or a domestic permanent establishment
of such an entity ; or

A Swiss resident joint-stock company that is subject to Swiss corporate income

tax without benefiting from any exemption; or

(26)

and
At the date on which the income is made available, the beneficiary has been holding or
undertakes to hold, directly, for an uninterrupted period of at least 12 months,
a participation of at least 10%, or with an acquisition price of at least EUR 1.2 million in
the share capital of the income debtor. If the participation is held through a tax-transparent
entity falling under I of article 175 LITL, this will be regarded as a direct participation,
proportionally to the interest held in the tax-transparent entity.

C.

Capital gains
The Grand-Ducal decree of 2 I December 200 I for the application of Article 166 of the
LITL provides that capital gains realized from the disposal of shareholdings are tax
exempt if:
The subsidiary is:
- A collective entity falling under article 2 of the amended version of the Council
directive of 23 July 1990 on the common system of taxation applicable in the case of
parent companies and subsidiaries of different Member States (90/435/EEC); or
- A Luxembourg resident capital company, which is fully taxable and does not take
one of the forms listed in the Enclosure to the paragraph 10 of article 166 of the
LITL; or
- A non-resident capital company that is fully liable in its state of residence to a tax

corresponding to the Luxembourg corporate income tax. Regarding this condition,

the Luxembourg tax authorities have set the rule that the foreign tax must be assessed
at a minimtun rate of 10,5% on a taxable basis determined similarly to the
Luxembourg one;
The beneficiary company is:
- A Luxembourg resident collective entity, which is fully taxable and takes one of the

forms listed in the Enclosure to the paragraph 10 of article 166 of the LJTL; or
- A Luxembourg resident capital company, which is fully taxable and does not take

one of the forms listed in the above-mentioned Enclosure; or

- A domestic permanent establishment of a collective entity falling under article 2 of

the amended version of the Council directive of 23 July 1990 on the common system
of taxation applicable in the case of parent companies and subsidiaries of different
Member States (90/435/EEC); or
- A domestic permanent establishment of a capital company that is resident in a State
with which Luxembourg has concluded a double tax treaty;
- A domestic permanent establishment of a capital company or of a cooperative

company which is resident in a European Economic Area (EEA) Member State other
than a EU Member State.
(27)

and
- At the date on which the alienation takes place, the beneficiary has held or
undertakes to hold the respective participation for an uninterrupted period of at least
12 months, and during this period the participation held docs not fall below 10% or
an acquisition price of less than EUR 6 million. lf the shares are held through a
Luxembourg tax-transparent entity, this requirement must be fulfilled not by the tax
transparent entity itself, but by the beneficiary, proportional to the interest held by
the latter in the tax-transparent entity.
A recapture system exists, under which the exempt amount of the gain is reduced by
the algebraic sum of income (mainly derived from the participation and potential writedowns in the value of the participation), to the extent that they have reduced the taxable
base of that year or previous years. Basically, an effect of this rule is that the capital
gain realized will become taxable up to the amount of the aggregate expenses and
write-downs deducted during the respective and previous years in relation to the
participation.
The purpose of the system is to avoid the taxation vacuum, which could result if the
deductibility of expenses and write-downs connected to the participation was allowed
whereas the income arising from the participation was tax exempt.

(28)

Appendix 8
Downstream merger
Article 169 LITL constitutes the general principle of taxation of profits arising upon the
dissolution of Luxembourg capital companies (including the merger of companies),
according to which the dissolution of a company implies the (taxable) realization of all its
assets and liabilities.
Art. 170 (2) LITL constitutes an exception to the above general principle if all assets and
liabilities of a resident capital company are transferred as a whole to another Luxembourg
fully taxable capital company, notably within the context of merger or transformation of a
company, any profit realized further to this transfer will not be taxable if the following
conditions arc met:
the transfer must be carried out either by means of the issue of shares by the
acquiring company to the shareholders of the transferring company,( ... ) or the
cancellation of a participation held by the acquiring company in the transferring
company, and
the transfer must be carried out in such a way that the profit (of the transferring
company) will be taxable in Luxembourg at a later date when, if no such
provision existed, it would have been taxed there.
In the case at hand, it has to be noted that the sole assets/liabilities of Global Bermuda at
the time of the merger will be the Global Luxembourg shares.
In this context, for simplification purposes, instead of transferring the assets and liabilities
of Global Bermuda (basically the Global Luxembourg shares) to Global Luxembourg (in
view of a corresponding increase of the share capital of the company followed by the
subsequent cancellation of the newly created shares), it has been decided to directly
transfer all the Global Luxembourg shares held by Global Bermuda to P&G Nordic LLC
and P&G Eastern Europe LLC (i.e. without any issuance of new shares by Global
Luxembourg to the shareholders of Global Bermuda).
Based on the above, article 170 (2) of the LITL should apply to the downstream merger
between Global Bermuda and Global Luxembourg and no taxable gain will be recognized
at the level of Global Bermuda in case of transfer of assets I liabilities to Global
Luxembourg as:
Global Bermuda and Global Luxembourg are both Luxembourg joint-stock
fully taxable companies at the time of the merger;
the merger will be carried out by means of the transfer of the shares by the
acquiring company to the shareholders of the transferring company, i.e. The
P&G Company;
Global Luxembourg will record in its books the assets and liabilities transferred
by Global Bermuda at the same accounting value as in the USD tax balance
sheet of Global Bermuda prior to the merger. According to the provisions of
(29)

article 170 (5) LITL, as the acquiring company (i.e. Global Luxembourg)
continues the accounting values recorded in the balance sheet of the
contributing company (i.e. Global Bermuda), the assets/liabilities (if any) will
be deemed to have been acquired on the same day on which the contributing
company has initially acquired them.
any deferred gain on the assets and liabilities transferred to Global Luxembourg
will be subject to taxation at a later stage at the level of Global Luxembourg,
upon realization.
Based on article 171 ( l & 3) of the LITL, in case of application of article 170 (2) of the
LITL [... ], any profit realized by the beneficiary company on the participation held in the
transferring company will be calculated as if this participation has been realized at its
operating value, whatever the valuation of the underlying assets.
The provisions of article 166 ITL remain applicable. I Iowever, when the participation held
by the beneficiary company in the transferring company exceeds I 0%, the profit realized
will be tax exempt.
Considering that article I 71 ( I & 3) of the LITL is dedicated to the tax treatment of the
upstream merger, without giving any guidelines regarding the downstream merger, by
assimilation, any profit realized by Global Bermuda upon the transfer of the Global
Luxembourg shares to the P&G Company will be tax exempt as Global Bemrnda will hold
100 % of Global Luxembourg at the time of the merger. Any loss will be tax deductible.

(30)

LE GOUVERNEMENT
DU GRAND- DUCHE DE LUXEM BOURG
Administration des cont ribu tions directes

Bureau d'imposition
Societes 6

For the attention of Valery Civilio

PricewaterhouseCoopers
400, route d'Esch
B.P. 1443
L - 1014 Luxembourg

Companies involved :
Procter & Gamble Luxembourg Global S.a r.I. - Tax number 2005 24 15854
Procter & Gamble International S.

ar.I. -

Tax number 2003 24 02381

Procter & Gamble Financial Services SA - Tax number 2009 22 05968

March 10, 2010

Dear Sir,

Further
to
your
letter
dated
28
January
2010
and
referenced
VCO/AYHA/MLMX/LTTY/HMIR/0 17810001M-GYVN relating to the transactions that the group
Procter & Gamble Co. would like to conduct, I find the contents of said letter to be in compliance
with current tax legislation and adm inistrative practice.

It is understood that my above confirmation may only be used within the framework of the
transactions contemplated by the abovementioned letter and that the principles described in
your letter shall not apply ipso facto to other situations.

Le prepose

bureau

d'imposition Societes 6
Marius Kohl

18, rue du Fort Wedell

Tel.: (352) 40.800-3118

Adresse postale

Luxembourg

Fax: (352) 40.800-3100

L-2982 Luxembourg

\ site Internet
\

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