Dratt ie pwe Contents age 1. Years open to inspection..... 3 M1. Condlusions. 1, Inter-company operations ninemsn 4 2. Tax-loss earry forwards. 4 IIL Follow-up of tax issues. 1. Corporate income tax... A) Inter-company operations. B) Interest-capping rule.. ©) Tax-loss carry forwards available for offset .. 6 D) Amortisation of intangible assets, tangible assets and investment property sairoonanineni 6 E) Gratuities 7 F) Insurance premiums... G) Other tax deductions 7 11) 2020 Corporate Income Tax Liquidation... 7 2, Non-residents’ tax... 9 A) Royalty sanaso 9 B) Interest 9 3. Personal Income Tax 9 4, Value Added Tax: 10Dratt pwc Years open to inspection. ‘The last tax inspection carried out on the company Kuhn Rikon Espafiola, S.A, was in January 3997 and in relation to corporate income tax, value added tax and interim withholdings and other payments. As a result of said inspection, assessments were signed in agreement for all the taxes. During 20:8, and on October 4th and November 16th, 2018, the Company received both requirements from the Spanish Tax Authorities (hercinafler STA) claimed to the taxpayer the 2017 VAT books (related input and output VAT), After filing the VAT books and a writing with an explication of all the specific matters from VAT, the STA closed the limited tax audit due to all the matters were duly clarified. During October 2020, the Company received an information request corresponding to the CIT of FYa8. Such requirement wes answered with the corresponding support information provided and was closed. At the date of issuing this report, the following years and taxes are open to inspection: esse Item Year Corporate ineome tax 2016 fo 2020 (*) ‘Value added tax 2017 onwards (**) Interim withholdings and other payments 2017 onwards ‘The corporate income tax filing period for the year 2020 is from ast to 25th of July 2021, so that at the date of issuing this report that corporate income tax return has not been filed. In any ease, the Company has filed the corresponding payments on account in April, October and December 2020. The information request procedure that was closed in FY20 doesn't exclude the possibility for the STA to start a tax audit, (#*): The limited tax audit related to 2017 year does not exclude the py tax inspection ofa completei pwe mL. Dratt Conclusions. ‘The conclusions of this report are set out below: 1 Inter-company operations. Regarding the regulations related to this issue, we refer to our report corresponding to the previous year In this respect, the rule establishes that operations carried out between related persons or entities shall be valued at their normal market value. Likewise, the legislation also establishes documentation obligations (documentation related to taxpayer and the group). Non-compliance with the documentation obligations entails important tax penalties. We remember the need for Company to have at tax authority's disposal the mentioned documentation related to exercises opened to tax inspection (related 2020, is due from July 25", 2023). According to the available information, the following operations could be considered as ‘an intercompany transaction: = Commercial operations relating to the buying and selling of merchandise. * Remuneration for delay of invoice payment. + Several reinvoicing (Civil liability insurance, advertisement, ete.). Obligations related to inter-company operations are regulated in Law 27/2014 related to Corporate Income ix and in the Royal Decree 634/2015. ‘Tax-loss carry forwards. ‘According to the Corporate Income Tax foreeast corresponding to the year 2020, Kuhn Rikon Espafiola, S.A, does not have tax losses carry forward, since in the 2016 Corporate Income Tax retum, the company’s full tax losses were fully offsetpwe IM, Follow-up of tax issue Dratt 4. Corporate income tax. A) B) mnter-company transactions. Law 27/2014, in relation to the tax treatment of related party transactions establishes that related transactions shall be valued at their market value. Normal market value shall be considered as the value that is agreed to by independent persons or enttities under conditions of free competition. In the other hand, the legislation also establishes documentation obligations for transactions developed. Non-compliance with the documentation obligations entails important tax penalties. ‘The Tax Administration shall be able to verify that operations carried out between related persons or entitics have been valued at their normal market value and, Where appropriate, shall carry out the necessary valuation adjustments. In accordance with the information available, the following operations would be considered as inler-company operations for the purposes hereof: = Commercial operations relating to the buying and selling of merchandise. * Remuneration for delay of invoice payment. = Soveral reinvoicing (Civil liability insurance, advertisement, ete.) Ones the company has been informed shout transfer pricing obligations, it confirms us that the entity is update regarding said obligations. Obligations related to inter-company operations are regulated in Law 27/2014 about Corporate Income Tax and in the Royal Decree 634/2015. Interest-capping rule, Law 27/2014 introduced with effects January 1, 2015, two deductible restrictions for financial expenses, The limitations are the following: © Deductible limitation on intra-group financial expenses, “Axticle 1g of Law 27/2014 ineludes specific language to deny the deductibility of interest from indebtedness with group companies ~whether resident in Spain or not- when the debt hus been used to acquire shares in other group companies, unless the tax payer is able to prove that the transaetion is supported by valid economic reasons.° D) Drait According with the information provided this limitation does not apply to Kuhn Rikon as the debt has not been used to acquire shares in order group companies, imitation on net financial expenses (30% of taxpayers’ EBITDA), Article 16 of Law 27/2014 states the rule that limits tax relief for net interest expense to 30% of taxpayers EBITDA (with some adjustments). It is also established thet, any ease, at least one million euros may be deductible. ‘This rule is not applicable this year to the Company because Kuhn-Rikon does not have a relevant net financial expense (€22,139.66). Tax-loss carry forwards available for offset. ‘The tax rule provides a limit for Une offsetting of negative tax bases. In case of companies whose net turnover in the 12 months prior to the beginning of the fiscal year was less than twenty millions of euros, it is established that the limit to the offset of negative tax bases is 70% of the previous tax base. However, it is also established that, in any case, one million euros may be offset. Aceording to the Corporate Income Tax forecast corresponding to the year 2016, the negative tax bases from previous years were fully offset. Consequently, in relation to the 2020 exercise, the Company does not have negative ‘tax bases to offset. Amortisation of intangible assets, tangible assets and investment property. For tax periods starting in 2013 and 2014, the accounting amortisation of intangible assets, tangible asscts and investment property will be tax deductible up to the amount of multiplying by 70%. From the first tex period commencing in 2015, the accounting amortisation which is not tax deductible as a result of the above restriction should be deducted on a straight-line basis over 10 years or es an option, over the assets useful life For this purpose, the following pos liquidations: ive tex adjustments were made in the 2018 Positive tax adjustment 102,990.62 2014 Positive tax adjustment €2,940.57 Total adjustment nse ne : €5,991.19 Total prepaid taxes at December 31°. 2014 €1,779.36 The company decides to deduct on a straight-line basis over 10 years and, therefare, the positive tax adjustment amounts to €593.12 (from 2035 to 2024),pwe H s) H) Dratt Due to the restriction was established as a temporary measure, in order to absorb the deerease in lax rate (from 30% to 28% in 2015 and 25% from 2016), Law 27/2014 established a tax eredit calculated as a percentage on the annual tax adjustment ¥ 2% in 2015 ¥ 5% from 2016 ‘Thus, it will be applicable a tax credit amounting to €29.66 (5% on €593.14 Simultaneously, part of the prepaid tax should be cancelling amounted to €177.94 (593.12"30%). Gratuities. In the CIT liguidation, positive adjustments have been made for non-deduetible expenses for the following items: Y- Grants to interns thet have the consideration of gratuities (€1,350). In this fiscal year, the Company has informed that no gratuities to internships have been paid. Insurance premiums, In relation to the insurance premium adjustments, see scction 3 of the Personal Income Tax. Other tax deduetions. ‘There is no additional deduction in the liquidation to the deductions of te measures mentioned in section D). porary 2020 Corporate Income Tux Liquidationpwe ulin thon Hsp, SAU, Hisalsmaranay Fem exfor/2020 To sujss/2020 gain before CH Permanent adjustments Positive Retirement inssmsnce ‘Acsdontinsurance 197B15€ Penalties 7c ‘Non deductible expenses 1.50.00 (her non deutble expenses c Negative Retiree insurance recovery = areas Adjustment book gain Tai§.02. [Temporanyadjastments ———___] ‘From the your Positive Nesalie From previous years Positive Nesaive ‘Recapture af the non deductiblesmortvaton inthe past - sesuze Previous tax base 464.481.48 Taxlosses carry forward ‘Taxbnse rx rate ax quota ‘Taxcodite ‘Tax quota Otherdaduetions aoa Temporary tae [ots deduetions ‘Tax quota after deduetions 78.28 € ‘Withholdings and payments on account 4 styyment on seeount 2ad payment on acount 15:947.82€ 3rdyeymenton acount 1g94782€ Wittholding ‘Total payments on aceaunt 2020 as8a7.8a © ‘Tax quota to pay, eee Drattpwe 2 Draft Non-residents’ tax. A) Royalty. According to the information provided by the Company, in this period 2020 Kuhn Rikon Espafiola S.A. has not paid any invoice related to Royalties B) Interest. In relation to the interest due to the delay in the payment of invoices, the total amount for 2020 has been €11,732. Article 11 of the Treaty to avoid double taxation signed between Switzerland and Spain estates: “Interest arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other State.” ‘Thus, the interest paid by Kuhn Rikon Espafiola S.A to Kuhn Rikon AG shall be subject to tax only in Switzerland. Howover, although the interest is exempt, the Company is informed that the relevant forms 216 and 296 must be filed. Lastly, we would like to remind you that a certificate must be obtained attesting to the fact thet Kuhn Rikon AG is’ resident of Switzerland for tax purposes, in the sense of the Treaty. Said tax residence certificate is valid for a period of one year. Personal Income Tax. As an insurance expense, it is recorded insurance refered to retirement for some employees. ‘This insurance is not allocated for personal income tax purposes (there is not a transmission of the right to receive the benefit until the retirement) and therefore it is not deductible and should be declare in model 345. ‘The amount of the expense is €2,145.21 (positive adjustment), In 2020, the recapture by the Company of this type of insurances have been amounted to €2,761.44 (negative adjustment). On the other hand, the Company has an insurance related to their employees (renewable annual premium).’This insurance should be necessarily treated as remuneration in kind and the Company should malke the corresponding payment on account with regards to said remuneration in kind. ‘The amount of the renewable annual premium is €1,979.15 Due to the insurance hus not been considered as remuneration in kind, we have proposed a positive adjustment for CIT purposes.Dratt Despile this amount is not relevant, we recommend the company to make the corresponding payment on account as remuneration in kind, in order fo avoid this tax risk. In case that this insurance premium is treated as remuneration in kind, the expense will be considered tax deductible. Valued Added Tax. With regard the sales made in the outlet, the company has informed us that it has been issued one invoice including all the transitions carried out each day. According with our legislation it is not possible to group, in one invoice, transitions made to different clients. This way of issuing the invoices could be penalized by the Spanish Tax Authorities, In 2020, the Company has not been subject to any tax audit or litigation related to VAT. 10