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Forsyth responded to a request from Santandreu in an
October 8, 1986, letter that summarized the reasons C&L was
recommending the changes to the Medieval Times corporate
structure. C&L stated that the problems with the current
structure were that a 30-percent withholding tax would apply to
royalty payments from MTNV and MANV and that a 30-percent branch
profits tax would apply on earnings and interest deemed
distributed by the existing Netherlands Antilles companies to
nonresidents. C&L’s recommendation included transferring
existing operations and real estate to U.S. corporations owned by
Dutch holding companies that would in turn be owned by the
existing Netherlands Antilles companies. The recommendation also
included borrowing in the United States to the maximum extent
possible through mortgage loans and working capital to maximize
tax benefits, with the funds used to pay dividends and/or reduce
capital prior to implementation of the reorganization and prior
to the effective date of the new tax act. The result would be to
reduce the tax rates for interest from 30 percent to 8.7 percent,
for royalties from 30 percent to 2.94 percent, and for dividends
from 53.8 percent to 43.9 percent.
The October 8, 1986, letter also included a list of things
to do to implement the plan, which included determining the
entity to own the intangibles (trademarks, copyrights, etc.) and
completing licensing agreements; implementing a borrowing
strategy; and targeting a completion date of December 31, 1986,
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