References: TSAZJP12709002M-CDT...B Applicable Tax Regime 4. Based on the Property and Securities Act related to the net wealth tax, Dutchdelta is liable to 2010 net wealth tax on

CLASSIFICATION SHEET

This document rel.ates to the following request:

BUREAU D'IMPOSITION SOC. 6 11 November 2009 ENTR E

References: TSAZJP12709002M-CDT

Client (Fiscal number): Dutchdelta Finance Sari - 2004 2401 596

1. Key topics: Net Wealth Tax -------------------------'

2. Name of the advisor : PwC

3. Corporate group's name, or fund sponsor: E.ON Group

4. Name of the ero,ject: Luxembourg Irish structure __ --------------~

S. Amount intended to be invested: around EUR 2.55bn

6. Date of receipt: 1 1 f\ OV. 2009

For the attention of Mr Marius Kohl

Administration des Contributions Directes Bureau d'imposition Societes VI 18, Rue du Fort Wedell L-2982 Luxembourg

11 November 2009

References: SES/TSAZ/P l 2709002M-CDT

o« G

Dutchdclta Finance S.a r.l ("Dutchdclta") - 2004 2401 596

Luxembourg Jrish structure

Dear Mr Kohl,

PriccwatcrhouscCoopcrs Socictc a rcsponsabilitc limitcc Hcviscur d'cntrcpriscs 400, route d'Esch B.P. 1443 L-1014 Luxembourg Telephone+ 352 494848- 1 Facsimile +352 494848-2900 www .pwc.com/lu [email protected]

BUREAU D'IMPOSITION SOC. 6 ENTREE

11 NOV. 2009

In our capacity of tax consultant of the above-mentioned client, we discussed in our meeting dated 19 October 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 a basis for the preparation of the tax returns of the Luxembourg Company involved.

A Background

1. Following the restructuring realized in June 2009 (we refer to our letter dated 24 June 2009 and referenced CDTffSAZ/Pl27c09002M-FYHS), the financial year closing of Dutchdelta has changed from 31 December to 9 June so that the company closed its accounts on 9 J unc 2009. The next closings should be on 9June 2010, 9 June 2011 etc.

2. Further to the restructuring above, it is envisaged to set-up an Irish non-trading branch of Dutchdelta.

3. For your information, you will find enclosed the description of the Group in Appendix 1 as well as the contemplated transactions and the final abbreviated structure in Appendix 2. Finally, the proposed Luxembourg tax treatment is described in Appendix 3.

R.C.S. Luxembourµ B 65 477 · IVA LU I 7564447

B Applicable Tax Regime

4. Based on the Property and Securities Act related to the net wealth tax, Dutchdelta is liable to 2010 net wealth tax on its net asset value as at 31 December 2009 (i.e. preceding 1January2010).

As the accounting period ended as at 9 June 2009, Dutchdelta will prepare an intermediary trial balance as at 31 December 2009 for net wealth tax purposes.

5. In November 2009, Dutchdclta will open an .Irish non-trading branch.

6. Based on the developments detailed in Appendix 3, Irish non-trading branch should be treated as a "pem1anent establishment" of Dutchdelta in Ireland.

7. For the calculation of Dutchdclta's net wealth tax, funds allocated to its Irish non­trading branch will not be taken into consideration in accordance with articles 22§2 and 23§3a of the double tax treaty concluded between Luxembourg and Ireland.

Furthennorc, the rccci vables/taxablc assets recorded in the accounts of Dutchdelta will be offset for determining its unitary value by the EUR interest free debt owed to its Irish non-trading branch so that around EUR 7.5m will remain subject to Luxembourg net wealth tax.

8. Accounts of Dutchdelta arc held in EUR. Accordingly, no forei&111 exchange difference should arise with respect to the financing from an accounting and tax perspective.

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

Yours sincerely,

( -/~ Catherine Dupont Partner

Appendices:

Appendix 1: Background information Appendix 2: Contemplated transactions and final abbreviated structure Appendix 3: Luxembourg tax analysis

111is tax agreement is based on the facts as presented to Pricewaterho11seCoopers Sari as at the date tlze advice was given. The agreement is dependent m1 specific facts and circumstances and may not be appropriate to any party other than the one for which it was prepared. This tax agreement was prepared with only the interests of E.ON Group in mind. and was not planned or carried out in co11te111platio11 of any use by any other party. PricewmerhouseCoopers Stir!, its partners, employees and or agents, neither owe nor accept any duty of care or any responsibility to any other party. whether in contract or in tort (including without limitation. 11eglige11ce or breach of statutory duty) however arising. and shall not be liable in respect of any loss, damage or expense of wlwtever nature which is caused to any other party.

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Appendix 1

Description of the E.ON Group

I. Powergen was created from the privatisation of the Central Electricity Generating Board (CEGB) in 1990 and grew from being an electricity generator to being the UK's largest integrated power and Gas Company, generating and distributing electricity, and retailing power and gas.

2. In April 200 l the German utility company E.ON AG announced a pre-conditional offer for the purchase of Powergen. This purchase was completed on 1st July 2002.

3. E.ON has become the world's largest privately-owned electricity and gas company, in line with its strategy of focused growth in the energy sector. The Powergen UK group has now been renamed E.ON UK and operates as a subsidiary of E.ON AG to help achieve its aim of leadership across the European energy market : Powergen's US Operations - initially held via Luxembourg - were sold to E.ON AG and continue to be used as a platform for expansion in the American energy market.

4. Nowadays, the E.ON UK Group is a leading energy supplier, with around nine million electricity and gas customer accounts. E.ON UK also produces electricity from a portfolio of world-class power stations and is one of the leading names in green generation.

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Appendix 2

Contemplated transactions and final abbreviated structure

Step 1:

[In November 2009J, Dutchdelta ta1ces out daylight borrowing of approximately EUR 2.55bn.

Step 2:

Dutchdelta allocates the amount received in Step 1 to a newly established Irish non-trading branch.

Step 3:

Irish non-trading branch uses the funds received at Step 2 to grant an interest free loan to Dutchdelta.

Step 4:

Dutchdelta uses the fund received at step 3 to repay the daylight borrowing of Step 1.

Final abbreviated structure:

EON Ffnonzanlogon GmbH (Germany)

Outchd111ta) (Luxombou•ll)

....

Poworgim Lux-emboul'g t--totding Sllrl (Luxombourg)

84.1%V >50%E

Ergon Holdings Ltd (Malta)

Ergon F inancial Ma11agomont Lid

(MB Ila)

EON AG (Garmany)

At least EUR 6mllllon

EON US Holding GmbH (Gormony)

EON US lnvostmonts Co(USA)

EON US Croup (USA)

159%V <50%E

I

EON No1dlcAB (Sweden)

EON Svorlgo AB (Sweden)

%V = % or voting shate]· %C • % oconomlc ownership

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Appendix 3

Luxembourg tax analysis

A Double tax treaty concluded between Luxembourg and Ireland

l. According to the information we have at our disposal, Dutchdelta is a Luxembourg tax resident company according to article 159 LITL and according to a1ticlc 3§ 1 (g) and (h) of the tax treaty concluded between Luxembourg and Ireland (hereafter refen-ed to as "the Treaty").

2. From a Luxembourg tax perspective, the tax treatment of the Irish branch will depend on its substance. The Irish branch is considered to be a non-trading branch in Lreland.

3. In this respect. the branch will have: • an office space and an Irish address; • all necessary material to carry out its activities (i.e., desk, fax, etc.); • a company name which will be displayed at the premises; • a telephone number which will be listed in the public phonebook; • its own bank account; • separate accounting records.

4. At least one manager will be appointed. This manager will be in charge of the daily management of the Irish branch. He will, among others, assist with the lending of funds and manage the loan to Dutchdclta.

5. The branch will be managed and controlled only in Ireland by its own Irish manager who will also be the branch 's employee. All decisions pertaining to the business of the branch will be taken in Ireland. The permanent establishment will have the authority to conclude contracts in the name of the company and the signatory authority on the bank account of the company.

6. Moreover, the following documents will be retained in Ireland and made available upon request: • the minutes of the board meeting of Dutchdelta creating the Irish branch and

allocating funds to the latter; • the minutes of the board meeting of Dutchdelta appointing the Irish branch manager

and any subsequent minutes of board meeting in relation with the branch; • a copy of the rental agreement for the office space; • a copy of a contract for an own telephone number; • a copy of the branch management agreement; • a copy of the payrolls of the branch; • a copy or the registration deed in [reland; • a copy of the contract for a local lrish bank account; • a copy of lhe registration deed in Ireland (or a substitute).

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7. In view of the aforementioned local substance in Ireland, the Irish branch will be qualified as a "permanent establishment" of Dutchdelta in Ireland, as defined in article 4 of the Treaty.

B Tax treatment of income realized by the Irish permanent establishment

1. According to article 6§ 1 of the Treaty, the business profits attributable to an Irish permanent establishment of a Luxembourg company may be taxed in Ireland.

2. Moreover, article 23 of the Treaty provides for methods to eliminate double taxation. Article 23§3 (a) of the Treaty stipulates that where a Luxembourg resident derives income, which in accordance with the Treaty may be taxed in Ireland, such income shall be exempt from tax in Luxembourg. Article 23§1 the Treaty, however, subjects the exemption provided by article 23§3 (a) to the condition that the income lo be exempted in Luxembourg has been "subject to tax" in Ireland (French wording: "passible de l' impot").

3. Article 23§ 1 of the Treaty in its French version does not provide for a subject to lax condition but merely to a "may be subject to tax" condition. Indeed, the French version1

of the Treaty is clear concerning article 23§ 1 of the Treaty, whereas the English vcrsion2

could give rise to some doubts concerning the notion of "subject to tax".

4. Since, in case of doubt, both texts are equally authoritative, reference should be made to other sources. Article 23 of the Treaty is based on the OECD Model Convention3 ('the Convention'). As a consequence the inte1pretation in case of doubt should be inspired by the Convention and its official comments .

5. In this respect, it should be noted that the Convention in French is similar to the French version of the Treaty5

, whereas the English version of the Treaty does not use the same wording as the Convention6

. The comments of the draft bill do not mention an intention of the parties not to follow the Convention, whereas it is mentioned for other articles when it is the case7

•

6. Furthermore, the Convention does not usually require "an effective taxation" of income as a condition for the application of an exemption. As a consequence, article 23§ 1 of the Treaty should not be viewed as requiring an effective taxation but rather and only as refe1Ting to the right to tax that both countries have8

. Moreover, this analysis of article 23§ l is consistent with all paragraphs of article 23.

1 The rrem:h version lays down that "lorsqu 'un revenu est passible de l "impot dans /es deux era ts contractants ... ", which can be translated by "where an income may he taxed". 2 The English version lays down that "where income is subject to tax". 3 Preparatory works n° 1679, pages 34, 1933 and 1950 4 Preparatory works n° 1679, pages 34 and 1933 5 The French version of the Treaty uses "passible de l'impot" and the French version of the Convention uses "imposable". 6 The Treaty mentions "subject to tax'', whereas the Convention mentions "111ay be taxahle". 7 E.g articles 18 and 20, cf page 1935 of the Preparatory work n° 1679. 8 Cf. comments on Article 23 A of the OECD Model Convention

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7. Notwithstanding the above analysis, and complementarily, even in case a doubt would remain with respect to the interpretation of the English version of article 23§ 1 of the Treaty, such doubt would disappear in the light of the general interpretation of the Convention and official commentaries thereof.

8. As mentioned above, the comments of the draft bill9 do mention that the Treaty follows in principle the Convention.

9. For the purpose of this interpretation, it has to be noted that a new anti-abuse provision was included in the Convention in 2000. New article 23 A paragraph 4 of the Convention provides that the exemption method for elimination of double taxation, provided by article 23 A paragraph 1, will not apply if the income is exempt from tax in the source country by application of the provisions of the Convention itself. In the case at hand, this would mean that Luxembourg could not exempt the income from tax if Ireland exempts this income from tax by application of the Convention.

I 0. The official commentaries to the Convention (Comment C(23) (24) point 56.2) expressly provide for the following: "Such provision (A1ticle 23 (A) 4) would therefore not apply where the slate of source considers that it may tax an item of income or capital in accordance with the provisions of the Convention but where no tax is actually payable on such income or capital under the provisions of the domestic laws of the state of source. In such a case, the state of residence must exempt that item of income under the provisions of§ l because the exemption in the state of source does not result from the application of the provisions of the convention but rather from the domestic Jaw of the state of source ...

11. Thus, article 23 § l of the Treaty may not be considered as exhaustive and as a consequence the Treaty therefore allows the application of the method to eliminate double taxation under article 23§3a either in case of double taxation or in case of single taxation in the state of residence when the source country is entitled to levy tax in accordance with the Treaty but does not tax the income by application of its domestic law.

12. As a consequence of the above, based on the conclusion that the Irish Branch constitutes a permanent establishment and on the understanding of article 23§ 1 of the Treaty set out above, the right to tax the profits deriving from the activities of the Irish Branch will be granted to Ireland by virtue of article 6§ 1 of the Treaty and such profits will be exempt from any Luxembourg corporate tax and municipal business tax in Luxembourg by application of article 23§3a of the Treaty. Profits include any possible foreign exchange profits (or losses) .

13. Consequently, corporate income tax and municipal business tax can only be levied on profits attributable to the Luxembourg company (i.e. Dutchdelta), since profits attributable to the Irish non-trading branch should be taxable in Ireland.

9 Preparatory works n°1679. pages 34, 1933 and 1950

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C Net wealth tax

l. For net wealth tax purposes, article 22§2 of the Treaty states that assets consisting of movable property being part of a permanent establishment may only be taxed in the state where this permanent establishment is located. According to article 23§3a of the Treaty, those assets will be exempt in Luxembourg from net wealth tax. Consequently, no net wealth tax will be levied in Luxembourg on the Irish branch assets.

2. At the level of Dutchdelta, the receivables/taxable assets held by the latter will be subject to net wealth tax on its fair market value while the interest free debt owed by its INTB (that corresponds mainly to the funds allocated to the f rish non-trading branch) will be deducted from the net wealth tax basis so that around EUR 7.5m will remain subject to Luxembourg net wealth tax.

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LE GOUVERNEMENT DU GRAND-DUCHE DE LUXEMBOURG Adm1nistrarron des contributions d1rcctes

Bureau d'imposition

Societes 6

For the attention of Catherine Dupont PricewaterhouseCoopers 400, route d'Esch B.P. 1443 L - 1014 Luxembourg

Companies involved :

Dutchdelta Finance S.a.r.I - 2004 2401 596

Dear Madam,

11 November 2009

Further to your letter dated 11 November 2009 and reference TSAZ-P12709002M-CDT relating to the transactions that the group E.ON Group would like to conduct, I find the contents of said letter to be in compliance with current tax legislation and administrative 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.

18. rue du Fort Wedell

Luxembourg

Tel.: (352) 40.800-3118

Fax: (352) 40.800-3100

Adresse postale

L-2982 Luxembourg

Site Internet

www.impotsdirects.public.lu