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ThisreporthasbeenpreparedbyPricewaterhouseCoopersWirtschaftsprüfungsgesellschaftbasedontheinstructionsprovidedbyGuangzhouPearlPianoGroupCo., .forthepurposeoftheacquisitionofSchimmelVerwaltungsgesellschaftmbH(“SVG”),WilhelmSchimmelPianofortefabrikGmbH(“WSP”),SchimmelAuswahlcentrumGmbH(“SAC”)andSchimmelMarketing&SalesGmbH(“SMS”)(inthefollowingreferedto“GermanTargetEntities”or“Targets”)inGermany. whoisnotanaddresseeofthisreportorwhohasnotsignedandreturnedtoPricewaterhouseCoopersAktiengesellschaftWirtschaftsprüfungsgesellschaftaRelianceLetterisnotauthorizedtohaveaccesstothisreport.WithregardtoanyunauthorizedrecipientasdefinedabovewewouldliketopointoutthePricewaterhouseCoopersAktiengesellschaftWirtschaftsprüfungsgesellschaftneitherowesnoracceptsanydutyorresponsibilitytotheunauthorizedrecipient.Weshallnotbeliableinrespectofanyloss,damageorexpenseofwhatsoevernaturewhichiscausedbyanyusetheunauthorizedrecipientmaychoosetomakeofthisreport,orwhichisotherwisearesultofgainingaccesstothereportbytheunauthorizedreaderunlessthereaderacceptsourtermsandconditionsbysigningandreturningtousaRelianceLetter.Project

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GuangzhouPearlRiverPianoGroupCo., YuWeiXiRoadNo.8,SouthHuaDiDaDaoLiWan,GuangzhouDearDr.HuiliWangT:+49(0)5790M:+49Dr.UlrichReuterSeniorManagerT:+49(0)895790M:+49(0)

ProjectOperaWereportonSchimmelVerwaltungsgesellschaftmbH(“SVG”),WilhelmSchimmelPianofortefabrikGmbH(“WSP”),SchimmelAuswahlcentrumGmbH(“SAC”)andSchimmelMarketing&SalesGmbH(“SMS”)(referedtoas“GermanTargetEntities”or“Targets”)inaccordancewithouragreementdated7December2015.ThisreporthasbeenpreparedforthepurposeofduediligenceinvestigationinconnectionwiththeproposedacquisitionofthetheGermanTargetEntities.Thisisadraftreport.Thecommentsinthisdraftreportaresubjecttoamendmentorwithdrawal.Ourdefinitivefindingsandconclusionswillbethosesetoutinthefinalreport.Thisreport dontheunderstandingthatitissolelyfortheuseof ,orswhohavesignedrelianceletterswhichhavebeenreceivedbyus(together“authorisedreader”),andonlyinconnectionwiththeproposedtransaction.Wewillnotbeliabletoanyunauthorisedreader.YoursfaithfullyPricewaterhouseCoopersAGDr.HuiliWangCertifiedTaxAdvisor

ppa.Dr.UlrichReuterCertifiedTaxAdvisorPricewaterhouseCoopersAGBernhard-Wicki-Stra?e8D-80636

Vorstand:WPStBProf.Dr.NorbertWinkeljohann,WPStBDr.PeterBars,WPStBCPAMarkusBurghardt,WPStBPetraJustenhoven,WPStBHaraldKayser,StBMariusM?ller,StBPetraRaspels,WPStBMartinScholichSitzderGesellschaft:FrankfurtamMain,AmtsgerichtFrankfurtamMainHRBInternational,einer limitedbyguaranteeregistriertinEnglandundProject

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OurscopeandOurscope OurtaxreviewscopecoveredtheGermanTargetEntities.Ourworkincludedthereviewofthetaxstatusforthefiscalyears2012–2014(RelevantYears),reviewofthelatesttaxfieldauditreportswithregardtoetaxes(CorporateeTax

TradeTax(“TT”),ValueAddedTax(“VAT”)andwage ysisandidentificationofmaterialtaxrisksfortheRelevantYearsandreviewoftaxattributeswhichcouldhavetaximplicationsinthefuture.OurreviewfocusedonetaxesandWithholdingTax(“WHT”)onWithrespecttotransferpricingwecarriedoutahighlevelreviewbutneitheradetailedfunctionnorben Withrespecttovalueaddedtax(“VAT”)andwagetaxesourreviewwaslimitedtothelatesttaxfieldauditreports.OurworkdidnotincludeareviewofRealEstateTransferTax(“RETT”),customs,energytax,stampdutiesoranyothertypeoftaxexceptforthosementionedaboveandwaslimitedtoGermanTax.Amaterialitythresholdofatleast€200ktaxcashoutperitemwasagreed.Ourreviewworkwascompletedon16DecemberAccessto Wehadaccesstothetarget’sfinancialandtaxadvisorduringaexpertcalldatedonDecember2015(“Q&Asession”)aswellasadditionalcallswiththeTargets’CFOwhenitwas Project

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OurscopeandAccessto Thesourcesofourinformationhaveconsistedofinformationprovidedtousviavirtualroom(VDR),Q&Asession ssenttousbytheGermanTargetEntities’Overall,theinformationprovidedhasgivenusareasonablebasis ysemajor

keytaxissuesandtransactionrelatedtaxrisksoftheGermanTargetClarityof TheinformationprovidedhasallowedustogainpreliminaryinsightandunderstandingsomeofthemostsignificanttaxissuesofGermanTarget Project

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ExecutiveATLCFsofTargetswilllikelyforfeitduetotheenvisagedtransactionA

Waivingoftaxesinrelationship BrestructuringB

TransactionsbetweentheGermanTargetEntitiesandshareholdersorrelatedcompaniesTaxlosscarryforwards(“TLCFs”)oftheGermanTargetEntities(EUR2,3mforCorporateeTax(“CIT”)andEUR2,5mforTradeTax(“TT”)purposes)arelikelytoforfeitduetotheenvisagedtransactionifnobuilt-ingainsexist.Built-ingainsaredefinedforTLCFutilizationpurposesasthedifferenceinthemarkedpriceandthebookvalues.

SVGandWSPfiledapplicationswiththetowaivetaxesinrelationshiptorestructuringgainswhichoccurredduringFY10.Finaldecisionsbythe arestillpending.IncaseWSP’sapplicationtowaiveTTisnotgrantedthetax mayaskforpaymentofTTuptoEUR322k.IfSVG’sapplicationtowaiveCITisgranted,SVGmayreceiveaCITrefundofEUR167k.Wehighlysuggesttoclarifythetreatmentofpotentialtaxpaymentsandrefundsthroughapropertax

Generally,transactionsbetweencompaniesandtheirshareholdersorrelatedcompaniesmustmeetthearm’slengthprinciple.Excessivepaymentstoshareholdersorrelatedcompaniesmayresultinadeemedconstructivedividendatthelevelofthepayingentitywhichwouldnotbetaxdeductible.WeidentifiedsignificanttransactionsbetweentheTargetsandtheirshareholdersorrelatedcompanies,buthavenotfoundindicationforinappropriatepricing. clausewithintheSPA. Transactionsbetweenthe

Nevertheless,withregardtotheinherentriskisgenerallymendedtocoverthisriskinTargetEntitiesandforeignAllcrossbordertransactionsbetweenpartiesmustmeetthearm’slengthprincipleandneedtobe edaccordinglytotherelevantregulations.Itneedstobeconsideredthatthecross-borderchargescouldbechallengedduringataxaudit.IncaseeoftheGermanTargetEntitiesisdeemedtobetoolow,taxableeinGermanymightbeincreasedduetoforeigntaxactWemendtocoverthisrisk

TaxauditAccordingtotheinformationprovidedtousnoetaxaudithastaken ceforSVG,SACandSMSsofar.Generally,theyearssincethemostrecenttaxauditremainsubjecttoreviewbythefinancial.Asaresult,FYofSVG,SACandSMSarestillopentoamendmentsthroughfuturetaxauditsforCITandTTpurposes.Wemendtocoverthepotentialtaxrisksresultingfromafuturetaxfieldauditthroughapropertaxindemnificationclauseinthe

appropriateSPAtaxpropertaxindemnificationinthe Project

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如德國目標(biāo)公司沒有未入賬的公司價(jià)值,其稅務(wù)虧損(企業(yè)所得稅:230萬,工商稅250萬)應(yīng)會在本

SVG和WSP向稅 申請豁免（免征） 申請豁免的工商稅不獲批準(zhǔn),稅務(wù)可能要求WSP繳付最高高達(dá)32萬2。G務(wù) 稅獲批準(zhǔn),稅務(wù) 會發(fā)還萬企稅 在 的 關(guān)

一般來說,與公司股東及其關(guān)聯(lián)公司的 派發(fā)股息,而該支付款項(xiàng)的公司在計(jì)算應(yīng) 雖然如此,針對這些 本身的風(fēng)險(xiǎn),我們一般建 務(wù)保證方面條款來規(guī)避這稅務(wù)風(fēng)險(xiǎn)。

跟據(jù)我們得到的資料SVGSACSMS到目前為止沒有受到稅務(wù)。一般來說,由最近一次稅務(wù)后的年度仍會受到稅務(wù)的。因此,SVG,SAC和SMS的財(cái)年仍可因住后的企業(yè)所得稅和工商稅而需要作出 Project

18December7Ataglance–our

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Executive1Dealrelatedtax89

Keyhistoricaltax Project

Strictlyprivateand

18December8Dealrelated

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TaxlosscarryforwardsoftheGermanTarget 1ExistingGermanTLCFswilllikelyforfeitduetotheRisklevel:

Accordingtoa providedintheVDR,TLCFsfortheGermanTargetEntitiesinthetotalamountofEUR2.3mforCITandEUR2.5mforTTpurposesexistasof31.DecemberThetaxeffectcanbedescribedasTLCFsasofend

Basically,TLCFscanbecarryforwardforanunlimitedtime.However,itsuseislimitedto60%ofthetaxableeinsofarthetaxableeexceedsEUR1m.Ifmorethan50%ofthesharesinacorporationaretransferredwithinfiveyears,ingeneralallTLCFsoftheacquiredentityanditsGermansubsidiariesareforfeited.CITEUR

€in

31Dec

Furthermore,thecurrentlossesfromJanuarytoTTEUR Tax Tax

2015wouldalsoforfeitinthecourseofatransactionofmorethan50%ofshares.Built-ingainsAsanexemptionrule,taxlossescarriedforwardremaindeductibleinsofarascoveredbybuilt-ingainsinthenetassetsofthetarget whicharesubjecttotaxinGermany.PleaserefertoGroupstructureandbackgroundinformationformoredetailedinformation.Impactof nnedWeexpectthatallTLCFswillmostlikelyforfeitduetotheenvisagedtransactionaswehavenoinformationwhethersignificanttaxablebuilt-ingainsexistinGermany. TLCFsshouldthereforenotbetakenintoaccount determiningthepurchaseProject

18December9DealrelatedVATfiscalunity

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2EffectivenessofVATfiscalunitybetweenSVG,WSPandSACRisklevel: fied:

FromtheinformationprovidedinthedataroomweunderstandthatSVG,WSPandSACareregardedastobepartofafiscalunityforVATpurposeswithSVGasthecontrollingBasedoninformationprovidedtousduringtheQ&AsessionwefurtherunderstandthattheVATfiscalunitywasregardedasexposedforasixmonthsperiodduringSVG’s

IncaseaneffectivefiscalunitforVATpurposesisince,theVATgroupwillbetreatedasonesingle forVATpurposesandthesubsidiaries’turnoverwillbeaggregatedwiththeparent’sturnoverinthelatter'staxreturn.AnytransactionsbetweencompaniesoftheVATgrouparetoberegardedasnon-taxableeventforVATpurposes.VATwillbedirectlyleviedattheleveloftheInteralia,aVATgroupmustmeetthebasicrequirementsoffinancial,economicandorganisationalintegrationasbelow:Financialintegrationimpliesthattheparentholdsthemajorityofvotingrightsoverthesubsidiaries.AsSVGisthesoleshareholderofWSPandSAC,financialintegrationshouldbeince.Economicintegrationmeansthatthebusinessofthesubsidiaryappearsasasupportingorcompletingintegralpartinthestructureoftheparent.Basedontheinformationprovided,weunderstandthatallmanagementstaffs(includingtheCEO)oftheGermanTargetEntitiesarelocatedonthelevelofSVG.Giventhis,SVGrendersmanagementservicestoitssubsidiesandreceivesaservicefeeasreimbursement.However,wearenotinthepositiontodeterminewhethertheconditionsofeconomicintegrationarefulfilled.Project

18DecemberDealrelatedVATfiscalunity

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2EffectivenessofVATfiscalunitybetweenSVG,WSPandSACRisklevel: fied:

OrganizationalintegrationmeansthatthecontrolledentitymustbeunderinstructionofthecontrollingInallcasesSVG,WSPandSACaremanagedbyMr.HannesSchimmel-Vogel(commonAsMr.HannesVogel-Schimmelisthesolemanagerweassumetheorganizationalintegrationastobegiveninthecaseathand.Althoughwearenotinthepositiontoassesswhethertheconditionoftheeconomicalintegrationisfullyfulfilled,weonlyseealowriskthattheVATfiscalunitymightbechallengedduringafuturetaxauditasthereisstrongevidencethattheremainingtwoconditionsshouldbefulfilled.However,wehighlymendtoconsiderthattheconditionsforVATfiscalunitymustbemetuponProject

18December

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KeyhistoricaltaxissuesRestructuringgainsofSVGand 3WaivingoftaxesinrelationshiptogainsstillsubjecttodecisionbytheRiskSVG:WSP: SVG:CITEURWSP:TTEURProject

BasedontheinformationfromprovidedinthedataroomandbasedontheinformationwereceivedduringtheQ&AsessionwiththeTargets’advisor,restructuringgainsoccurredatthelevelofSVGandWSPduringFY10.SVGfiledanapplicationwiththetowaiveCITtotheextentofEUR167kinrelationshiptotherestructuringgains.However,nodecisionhasyetbeenmadebythetax WSPalsofiledanapplicationwiththelocalmunicipalitytowaiveTTintheamountofEUR322kinrelationshiptotherestructuringgains.IncaseofWSP,paymentofTTwaspostponementtotheextentofEUR322k.However,nofinaldecisionhasyetbeen

Arestructuringgainresultsfromanincreaseofbusinesspropertyduetoandecreaseofliabilities,wherebyliabilitiesarewaivedwiththepurposeofrestructuringthe DuetoachangeinGermanetaxlaw,restructuringgainsarenolongertaxexemptedfromFY1998onwards.However,accordingtoaDecreeoftheGermanMinistryofFinancedated27March2003,uponapplicationandifcertainconditionsarefulfilled(i.e.needandabilityofrestructuring),taxesinrelationshiptorestructuringgainscanbedeferredandwaived.Wehavenoinformationtowhichextenttheaforementionedconditionsaregiveninbothcasesathand.ImpactoftherestructuringBasedonourunderstandingofthefacts,SVGalreadypaidtheCITwhichissubjecttobewaived.Thus,incaseSVG’sapplicationtowaiveCITisgranted,thecurrentshareholdersmayaskthenewownerstorefundthistaxAccordingtoourunderstanding,WSP’sTTinrelationshiptotherestructuringgainsisdeferredbutnotpaid.Thus,incaseWSP'sapplicationtowaiveTTisnotgranted,thetaxmayaskforpaymentofTTuptoEURpotticltbrpaymentsandrefundsthroughapropertaxclausewithin theSPA.

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KeyhistoricaltaxissuesRelatedparties 4betweentheGermanTargetEntitiesandshouldbeatarm’s4Risklevel: fied:

AccordingtotheinformationfromtheVDR,thereareseveraltransactionsbetweentheGermanTargetEntities,e.g.:managementservicesprovidedbySVGtotheotherGermanTargetEntitiestotheextentofapprox.EUR3mforFY12-14(mark-upof5%isin panysalesofAlso,thereareseveraltransactionsbetweentheGermanTargetEntitiesandtheirshareholdersandtheirrelatedparties:loanagreementstotheextentofapprox.EUR4m,employmentcontractswithfamilymembers(e.g.Mr.HannesSchimmel-

Basically,panytransactionsaretreatedlikeanyothertransactionswithathirdpartyforGermanetaxpurposes.Thus,panytransactionsmustmeetarm’slengthconditions,i.e.,theprices/remunerationagreedonbetweentheGermanTargetEntitiesaswellasbetweentheGermanTargetEntitiesandtheirshareholdersmustbeasagreedbetweenindependentthirdparties.Inthecasetheprices/remunerationagreedonaresignificantlybelowthemarketprice,thetaxmightchallengethepricesinafuturetaxauditresultinginaconstructivedividendattheleveloftherespectiveGermanTargetEntity.Theconstructivedividendiscalculatedonthedifferencebetweenthemarketpriceandtheagreedprice.Thisamountisthenaddedtothe ’staxablee(taxedatarateof31.575%forcorporateeandtradetax).InadditiontotheaforementionedtaxriskthereshouldgenerallybeawithholdingtaxriskattheleveloftheGermanTargetEntitiesincaseofaconstructivedividend.ImpactofthepanyBasedontheinformationprovided,wewerenotabletoassessthearm’slengthnatureofthetransactions,andthuswewerenotinthepositiontoestimatetheamountatrisk,if Project

const1ucemberdividendduetopanytransactionswithinthe

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KeyhistoricaltaxissuesRelatedparties 4CrossbordertransactionswithPolishandUSentitiesshouldbeatarm’slength4Risklevel: fied:

Basedonthe sprovidedintheVDRandontheinformationprovidedtousduringtheQ&Asession,weunderstandthattheGermanTargetEntitiesbuygoodsfromaPolishaffiliate(contractmanufacturing).Also,theGermanTargetEntitiessellgoodstoaUS-affiliate(sales AccordingtotheTargets’CFOandtaxadvisor,theamountofpurchasedgoodsfromthePolishaffiliateamountstoapprox.EUR2mforFY13andtheamountofgoodssoldtotheUSaffiliateamounttoapprox.EUR3mforFY13.WewerenotprovidedwithanyfurtherinformationregardingFY12andHowever,wewerenotprovidedwithdetailsregardingtheunderlyingconditions.

Asmentionedbefore,forGermantaxpurposes,itmustbeensuredthattheconditionsofalltransactionsbetweenrelatedcompaniesgenerallyareinlinewiththearm’slengthprinciple.IncaseeoftheGermanTargetEntitiesisdeemedtobetoolow,e.g.duetohighpricesdemandedfromthePolishaffiliatedorduetolowpriceschargedtotheUSaffiliate,taxableeinGermanymightbeincreasedaccordingtoGermantaxlaw.ImpactofthecrossborderItneedstobeconsideredthatthecross-borderchargesarelikelytobesubjecttointensereviewbytaxauditors.Basedontheinformationprovided,wewerenotabletoassessthearm’slengthnatureofthetransactions,andthuswewerenotinthepositiontoestimatetheamountatrisk,ifany.Wemendtocoveranyriskarisingformatoolow/toohighcrossborderchargesthroughpropertaxindemnificationwithintheSPA.Project

18December

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KeyhistoricaltaxissuesRelatedparties 5MissingtransferRisklevel: fied:

AccordingtotheinformationprovidedtousduringtheQ&Asession,TP arenotincefortherecentyears.

Sinceaccordingtothemanagementthecriticalthresholdsareexceeded,theGermanTargetEntitiesareobligedtoprepareandmakeavailabletransferpricing reportsuponrequestwithin60days.ImpactofthemissingTPFailuretoprovide ationrequiredmightestimatee.Inaddition,penaltiesof5%-10%ofthesurplusamountofemightedue.Incaseofa ation,tax areentitledtoimposepenaltiesofupto€1m,atleast€100perdaytheationisPleaserefertoGroupstructureandbackgroundinformationformoredetailedinformation.WemendtocoveranyriskarisingformthemissingTPReportthroughataxclausewithintheSPA.Project

18December3Groupstructureandbackground4Compliance5Generaltax

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18December3Groupstructureandbackground

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Groupstructureandbackgroundinformation

SBGwasfoundedin2003inthelegalformofaGmbHwithitslegalseatinBraunschweig.SBG’sshareholdersareViolaSchimmelwithaportionof83.4%andGabrielaSchimmel-Radmacherwithaportionof16.6%.ThepurposeofSBGisthemanagementofSBGisthegeneralpartnerof

SPBKGwasfoundedin2003inthelegalformofaKGwithitslegalseatinBraunschweig.ThegeneralpartnerisSBG.LimitedpartnersareViolaSchimmelwithaportionof83.4%andGabrielaSchimmel-Radmacherwithaportionof16.6%.Allshareholdingsare100%unlessotherwiseThisorganisationalchartwaspreparedbasedoninformationprovidedbythe .Wehavenotconfirmedorverifiedthelegalstatusorstandingofanyoftheentitiesshownhere.Wemendthatlegalcounselbeconsultedregardingthelegalstatusand/orstandingofthe

SPBwasfoundedin1978inthelegalformofaGmbHwithitslegalseatinBraunschweig.SVG’sshareholderisThepurposeofSVGistheadministrationandmanagementofotherProject

18December3Groupstructureandbackground

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GroupstructureandbackgroundinformationWSPwasfoundedin1933inthelegalformofaGmbHwithitslegalseatinBraunschweig.WSP’sshareholderisThepurposeofWSPistheproductionofmusicinstruments,especiallypianosandgrandpianos.SMSwasfoundedin1981inthelegalformofaGmbHwithitslegalseatinBraunschweig.SMS’sshareholderisThepurposeofSMSisthesaleofmusicinstrumentsaswellasthemarketingformusicinstruments.SACwasfoundedunderthenameofPoenigManufacturGmbHin2005inthelegalformofaGmbHwithitslegalseatinSACnameandpurposewerechangedin2011toitsThepurposeofSACistheretailofmusicSAC’sshareholderis

SFFandSchimmelFabrykaFortepianowsp.Zo.o.(“SFF”)islocatedinPoland.ItspurposeisthecontractmanufacturingofmusicSchimmelPianoCorporation(“SPC”)islocatedinUS.Itspurposesissaleofmusicinstruments.SFF’sandSPC’sshareholderisMaterialAccordingtotheinformationprovidedtousthefollowingreorganisationsoccurredintherecentyears:InFY10aformer24.9%shareholderofWSPwithdrewitsshareinthecourseofacapitalincreaseatthelevelofWSP.InFY06SchimmelPianoforteBeteiligungsgesellschaftmbHcontributeditssharesinWSPtoSVGatcarry-overbase.However,inbothcasesnoadversetaximplicationshouldresultwithregardtotheGermanTargetEntities.AlsoinFY06,WSPsolditssharesinSPCforthetotalamountofEUR340ktoSVG.However,asFY06isnotunderreviewwearenotinthepositiontoassessthearm’slengthnatureofthisProject

18December4Compliance

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ExaminationandcompliancestatusCIT/notesuptoandComplianceTheGermanTargetEntitiesarefileduptoandincludingFY13

currentlybeingTaxaudit

entitydidnotyetCIT,TTandVATpurposes.AccordingtotheinformationfromtheQ&AsessiontaxreturnsforFY14arestillunderpreparation.TheGermanTargetEntities’CIT,TT,VATcomplianceishandledbyanexternaladvisors.OnlythepreliminarymonthlyVATfilingisdonein-house.FiscalyearsoftheTargetscorrespondtocalendarNobindingrulingsorsignificantagreementswithtaxarein TaxlitigationWithregardtotheGermanTargetEntitiesnodisputesorlawsuitswithtax arecurrentlypending.

Basedontheinformationavailabletousthemostrecenttaxauditforetaxes(CIT,TT)took ceinFY14.Thereby,FY08uptoandincludingFY12weresubjecttoreviewbythetax .Thetaxauditdidnotresultinanyfindings.Themostrecentwagetaxaudittook ceinFY14.FY11–13weresubjecttoreview.Onlyminorfindingsoccurred.Thelastwagetaxaudittook ceFY14.Thereby,FY11–13weresubjecttoreview.Onlyminorissueswerechallenged.CurrentlynotaxauditsarependingorProject

18December4Compliance

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ExaminationandcompliancestatusTaxTheTLCFsasofDecember31,2013amount-CIT:EUR-TT:EUR-CIT:EUR-TT:EUR-CIT:EUR-TT:EUR-CIT:EUR-TT:EUR

ForeignpermanentDuringourduediligencework,wehavenotreceivedanyinformationwhetheraforeignpermanentestablishmentexists.Project

18DecemberTaxationofcorporationsGeneralcommentsande

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GeneralAGermanGmbH(Gesellschaftmitbeschr?nkterHaftung)is withlimitedliabilityandaminimumsharecapitalofatleast€ResidentBusinessprofitsinGermanyaresubjecttotradetax(TT)leviedbythelocal (provinces)andcorporateetaxCompanieshavingtradingearesubjecttoTT.TheobjectoftaxationistheGermanbusinessoperation,whichpresupposesalocalpermanentestablishment.CorporationswithregisteredseatoractualceofmanagementinGermanyaresubjecttoCITandTT,fundamentallyontheirentireworldwidee.TaxThestatutoryCTrateis15%,plusasolidaritysurchargeof5.5%ontheCTassessed,totalling15.825%.ThemunicipalTTiscalculatedintwosteps.Thefirstisauniformrateof3.5%togivethe“taxmeasure”.Thetaxmeasureisthenmultipliedbythelocalmunicipaltaxrate(Hebesatz)dependingonthe ceofbusinessorestablishment.AtpresenttheTTraterangesfrom7%(localrate200%)upto18.2%(localrate520%).ThemunicipalrateoftheGermanTargetEntities’locationisrjectr50%rttritypri.aeand

DeviationsbetweenGermanGAAPaccountsandtaxGenerally,thetaxableeiscalculatedfromataxbalancesheetbasedonthestatutoryaccountsaccordingtoGermanGAAP.Therearecertainspecifictaxlawandaccountingadjustmentstobemadeasopposedtothestatutoryaccountsandadditionalaccountingoptionsareavailable.Frequentlyfoundtaxadjustmentsare,e.g.Intangibles,certainprovisions,annualdepreciationoncertainassets(suchasacquiredgoodwill)orinterest- liabilitiesandcertainaccrualswithatermofatleast12months.Off-balance-sheet-Therearelimitationsonthedeductionofcertaincurrentbusinessexpenses.Non-deductibleorpartlydeductible?iesna,stestppltycirgesonthesetaxes,giftstonon-employeesinexcessof€35per 30%ofentertainmentnon-deductibleinterestexceedingthelimitation(forfurtherdonationsexceedingcertainAdd-backs/DeductionsforTTGenerally,TTisappliedoneascomputedforCT,withspecificadjustmentsfordisallowableexpensesanditemsof e(add-backs/deductions).18Decemberplies.

TheGermanTargetEntities’combinedstatutorytaxrate

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Germantaxattributes–taxlossescarriedforward(TLCF)

GotoIssueGermanlosscarry-overrules–Taxlosses(CIT,TT)canbecarriedforwardforunlimitedtimeandusedinlatertomitigatetaxburdens.Taxlossescanalsobecarriedbacktothepreviousassessmentperiod.Butthelosscarry-backislimitedto€1mandappliesonlyforCIT,butnotforTT.Taxlossescarriedforwardaregenerallyutiliseduptoalimitof60%ofthetaxableeinsofarasthetaxableeexceeds€1m.So40%ofthe ’spositivee(inexcessof€1m)willbetaxed(so-called‘MinimumTaxation’).Ifmorethan25%(butnotmorethan50%)ofthesharesorvotingrightsinacorporationaredirectlyorindirectlytransferredtooneacquireror (s)relatedtotheacquireroragroupofacquirerswithacommoninterestwithinfiveyears,thisresultsinaprorataforfeitureofthetaxlossescarriedforwardandofthecurrentlossoftheyearinwhichthetransfertakesce(e.g.atransferof30%oftherstsofnlTrsfr.of

AsperFederalFiscalCourtdecisions,wheresharesaretransferredinacorporationwithTLCFsduringitsfiscalyear,profitsincurredtilltransferdatecanbeoffsetagainstTLCFs.NolossforfeitureincaseofinternalgroupTransferofsharesorvotingrightswill–understrictconditions–notleadtoaforfeitureoftaxlossesincaseofintra-grouptransactions.Transferorandtransfereehavetobedirect/indirect100%subsidiariesofthesameshareholder.Taxlossescarriedforwardprotectedbybuilt-inIncasesharesareharmfullyacquired,taxlossescarriedforwardremaindeductibleinsofarascoveredbybuilt-ingainsinthe netassetswhicharesubjecttotaxinGermany.Soifthetaxlossescarriedforwardwereonlyforfeitedpartially(i.e.whiletransferringmorethan25%andupto50%oftheshares),onlytherespectiveprorataamountofbuilt-ingainshastobetakenintoaccount.Built-ingainsmaybedefinedas