Syngenta Holdings Limited v The Commissioners for HMRC [2024] UKFTT 998 (TC)

“441 Loan relationships for unallowable purposes (1) This section applies if in any accounting period a loan relationship of a company has an unallowable purpose. … (3) The company may not bring into account for that period for the purposes of this Part so much of any debit in respect of that relationship as on a just and reasonable apportionment is attributable to the unallowable purpose. … (5) Accordingly, that amount is not to be brought into account for corporation tax purposes as respects that matter either under this Part or otherwise. (6) For the meaning of ‘has an unallowable purpose’ and ‘the unallowable purpose’ in this section, see section 442.”

“‘Tax Advantage’ (1) This section has effect for the purposes of the provisions of the Corporation Tax Acts which apply this section. (2) ‘Tax advantage’ means— (a) a relief from tax or increased relief from tax, (b) a repayment of tax or increased repayment of tax, (c) the avoidance or reduction of a charge to tax or an assessment to tax, or (d) the avoidance of a possible assessment to tax. (3) For the purposes of subsection (2)(c) and (d) it does not matter whether the avoidance or reduction is effected— (a) by receipts accruing in such a way that the recipient does not pay or bear tax on them, or (b) by a deduction in calculating profits or gains. (4) In this section “relief from tax” includes— (a) a tax credit under section 1109 for the purposes of corporation tax, and (b) a tax credit under section 397(1) or 397A(1) of ITTOIA 2005 for the purposes of income tax.” (a) a relief from tax or increased relief from tax, (b) a repayment of tax or increased repayment of tax, (c) the avoidance or reduction of a charge to tax or an assessment to tax, or (d) the avoidance of a possible assessment to tax. (a) by receipts accruing in such a way that the recipient does not pay or bear tax on them, or (b) by a deduction in calculating profits or gains. (a) a tax credit under section 1109 for the purposes of corporation tax, and (b) a tax credit under section 397(1) or 397A(1) of ITTOIA 2005 for the purposes of income tax.”

“The following points bear, as it seems to me, on when a company should be considered to have held shares for an “unallowable purpose”: i) A company had an ‘unallowable purpose’ if its purposes included one that was ‘not amongst the business or other commercial purposes of the company’ (see paragraph 13(2) of schedule 9 to FA 1996); ii) A tax avoidance purpose was not necessarily fatal. It was to be taken to be a ‘business or other commercial purpose’ unless it was ‘the main purpose, or one of the main purposes, for which the company is a party to the relationship’ (see paragraph 13(4)); iii) It was the company’s subjective purposes that mattered. Authority for that can be found in the decision of the House of Lords in Inland Revenue Commissioners v Brebner [1967] 2 AC 18, which concerned a comparable issue, viz. whether transactions had as ‘their main object, or one of their main objects, to enable tax advantages to be obtained’. Lord Pearce concluded (at 27) that ‘[t]he ‘object’ which has to be considered is a subjective matter of intention’, and Lord Upjohn (with whom Lord Reid agreed) said (at 30) that ‘the question whether one of the main objects is to obtain a tax advantage is subjective, that is, a matter of the intention of the parties’; and iv) When determining what the company’s purposes were, it can be relevant to look at what use was made of the shares. As the Upper Tribunal (Barling J and Judge Charles Hellier) noted in Fidex v HMRC [2014] UKUT 454 (TCC), [2015] STC 702 (at paragraph 110): ‘what you do with an asset may be evidence of your purpose in holding it, but it need not be determinative of that purpose. The benefits you hope to derive as a result of holding an asset may also evidence your purpose in holding it’.” i) A company had an ‘unallowable purpose’ if its purposes included one that was ‘not amongst the business or other commercial purposes of the company’ (see paragraph 13(2) of schedule 9 to FA 1996); ii) A tax avoidance purpose was not necessarily fatal. It was to be taken to be a ‘business or other commercial purpose’ unless it was ‘the main purpose, or one of the main purposes, for which the company is a party to the relationship’ (see paragraph 13(4)); iii) It was the company’s subjective purposes that mattered. Authority for that can be found in the decision of the House of Lords in Inland Revenue Commissioners v Brebner [1967] 2 AC 18, which concerned a comparable issue, viz. whether transactions had as ‘their main object, or one of their main objects, to enable tax advantages to be obtained’. Lord Pearce concluded (at 27) that ‘[t]he ‘object’ which has to be considered is a subjective matter of intention’, and Lord Upjohn (with whom Lord Reid agreed) said (at 30) that ‘the question whether one of the main objects is to obtain a tax advantage is subjective, that is, a matter of the intention of the parties’; and iv) When determining what the company’s purposes were, it can be relevant to look at what use was made of the shares. As the Upper Tribunal (Barling J and Judge Charles Hellier) noted in Fidex v HMRC [2014] UKUT 454 (TCC), [2015] STC 702 (at paragraph 110): ‘what you do with an asset may be evidence of your purpose in holding it, but it need not be determinative of that purpose. The benefits you hope to derive as a result of holding an asset may also evidence your purpose in holding it’.”

“The parties were quite right not to dispute the fact that what matters is the company’s subjective purpose or purposes in being a party to the loan relationship in question. The purpose or purposes for which a company is a party to a loan relationship may or may not be the same as, for example, the purpose or purposes for which the company exists, or the purpose or purposes of a wider scheme or arrangements of which the loan relationship forms part. Those other purposes may, for example, encompass the purposes of other actors. There is a contrast here between the unallowable purpose rule and the ‘targeted anti-avoidance rule’ introduced by Finance (No.2) Act 2015 as ss. 455B-455D CTA 2009. That rule requires consideration of the main purpose or purposes of ‘arrangements’.”

“It was also common ground that for a corporate entity…, which can only act through human agents, it is necessary to consider the subjective purpose of the relevant decision makers. Unless they have been bypassed or are effectively acting on instruction, that will normally be the board of directors…”

“a) Save in ‘obvious’ cases, ascertaining the object or purpose of something involves an inquiry into the subjective intentions of the relevant actor. b) Object or purpose must be distinguished from effect. Effects or consequences, even if inevitable, are not necessarily the same as objects or purposes. c) Subjective intentions are not limited to conscious motives. d) Further, motives are not necessarily the same as objects or purposes. e) ‘Some’ results or consequences are ‘so inevitably and inextricably involved’ in an activity that, unless they are merely incidental, they must be a purpose for it.’ f) It is for the fact finding tribunal to determine the object or purpose sought to be achieved, and that question is not answered simply by asking the decision maker.”

“As Nugee LJ suggested in argument, a simple starting point in ascertaining a person’s purpose for doing something is to consider ‘why’ they did it. While this will not cover all the nuances – and in particular the potential distinction between purpose and motives discussed in MacKinlay – it is a sensible starting point.”

“How then should this point be addressed in the context of s.442? The unallowable purpose rule forms part of a code, contained in Part 5 of CTA 2009, which governs the treatment of loan relationships for corporation tax purposes, and which among other things specifically contemplates tax relief for interest and other expenses of raising debt. The corporation tax relief available is obviously a valuable relief. It is unrealistic to suppose that it will not form part of ordinary decision-making processes about methods of funding a company. Indeed, it might well be wrong for directors to ignore that consideration in deciding what is in the best interests of the company concerned. I agree with Mr Prosser’s submission that it cannot have been Parliament’s intention that the inevitable consequence of taking out a loan should engage the unallowable purpose rules, subject only to consideration of whether the value of the tax relief is sufficient to make it a ‘main’ purpose. Something more is needed.”

“As I explained in BlackRock at [150], it cannot have been Parliament’s intention that the unallowable purpose rule will be engaged as an inevitable consequence of taking out (or, I would add, maintaining) a loan, or indeed charging interest on it at a commercial rate, subject only to consideration of whether the value of the tax benefits are sufficient to make it a ‘main’ purpose. The mere fact that a group organises its affairs in a manner that makes use of brought forward non-trading deficits and that it expects to obtain relief for interest and other expenses of loan relationships, in each case as the legislation contemplates, cannot be enough to engage the unallowable purpose rule.”

“Here there was only a single indivisible transaction and it was an ordinary commercial transaction, a simple purchase of debenture stock. As the purchaser was a dealer he was entitled to keep the interest element out of his tax return and so was able to pay a higher price than an ordinary taxpayer would have been able to pay. Similarly, a charity, because it would have been able to reclaim the tax, would have been able to pay an equally large price and still make a profit. But it is to my mind an abuse of language to say that the object of a dealer or a charity in entering into such a transaction is to obtain a tax advantage. When a trader buys goods for £20 and sells them for £30, he intends to bring in the £20 as a deduction in computing his gross receipts for tax purposes. If one chooses to describe his right to deduct the £20 (very tendentiously be it said) as a ‘tax advantage’ one may say that he intended from the first to secure this tax advantage. But it would be ridiculous to say that his object in entering into the transaction was to obtain this tax advantage. In the same way I do not think that one can fairly say that the object of a charity or a dealer in shares who buys a security with arrears of interest accruing on it, is to obtain a tax advantage, simply because the charity or the dealer in calculating the price which they are prepared to pay proceed on the footing that they will have the right which the law gives them either to recover the tax or to exclude the interest as the case may be.”

“53. The observations of Cross J call attention to the need when determining whether the obtaining of a tax advantage was a main object of an ordinary commercial transaction, to consider with care the significance to the taxpayer of the tax advantage. The tax advantage may not be a relevant factor in the decision to purchase or sell or in the decision to purchase or sell at a particular price. Obviously if the tax advantage is mere ‘icing on the cake’ it will not constitute a main object. Nor will it necessarily do so merely because it is a feature of the transaction or a relevant factor in the decision to buy or sell. The statutory criterion is that the tax advantage shall be more than relevant or indeed an object; it must be a main object. The question whether it is so is a question of fact for the commissioners in every case. Unless the commissioners misdirect themselves in law as to the test to be applied (as Cross J plainly thought was the case in Kleinwort) their decision cannot be challenged. It is plain that the commissioners correctly directed themselves in law in this case and that their decision was one which they could reasonably reach. I therefore do not think that invocation of the judgment of Cross J in Kleinwort assists the trustees.”

“However, as this Court recognised in Sema, Cross J’s comments in Kleinwort Benson must be understood in the light of the facts of that case. Lightman J rightly emphasised at [53] of his decision in Sema (the paragraph approved by the Court of Appeal in that case) that the significance of the tax advantage to the taxpayer must be considered with care. I would add that it should also be considered in the context of the relevant legislative code. As Lightman J also explained, there is a range of possibilities. The possibilities include that the tax advantage may be a ‘feature’ or a ‘relevant factor’ without being a main object. (I would take the opportunity to clarify that Lightman J was not saying in the preceding sentence that anything that is more than ‘icing on the cake’ will be a main object, rather that if it is no more than that then the answer is obvious that it will not be.) But the important point is that whether a purpose is a main purpose is a question of fact for the fact-finding tribunal, which cannot be interfered with in the absence of an error of law.”

“I would add, however, that I do not accept that, as was submitted by Mr Ghosh, ‘main’, as used in paragraph 13(4) of schedule 9 of FA 1996, means ‘more than trivial’. A ‘main’ purpose will always be a ‘more than trivial’ one, but the converse is not the case. A purpose can be ‘more than trivial’ without being a ‘main’ purpose. ‘Main’ has a connotation of importance.”

“i) Even where a company entering into a loan relationship was brought into being to further a wider scheme, the company’s purposes in becoming a party to the relationship are not necessarily those for which it was created or those of the wider scheme; ii) On the other hand, the context, and in particular the purposes of the wider scheme which the company was intended to advance, may, depending on the facts, bear on the company’s purposes in entering into the loan relationship; iii) The company will have a ‘tax avoidance purpose’ within the meaning of section 442 of CTA 2009 if it is seeking to play its part in a scheme which, to the knowledge of the relevant decision-makers, was designed to secure a tax advantage; iv) If it can be said that the company wishes to go along with such a scheme whatever its purposes might be, it may well be that the company has an unallowable purpose regardless of whether it appreciates that the scheme was designed to secure a tax advantage. It may suffice that those promoting the scheme have that intention; v) The fact that the decision-makers consider that entering into the loan relationship is in the company’s interests for other reasons does not preclude them from having a ‘tax advantage purpose’; and vi) A Tribunal determining whether a company had a ‘tax avoidance purpose’ is not required to adopt a “tunnel-visioned” approach looking simply at how the company was proposing to use the money it was borrowing.”

“civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings. Other, more subtle influences include allegiances created by the process of preparing a witness statement and of coming to court to give evidence for one side in the dispute. A desire to assist, or at least not to prejudice, the party who has called the witness or that party’s lawyers, as well as a natural desire to give a good impression in a public forum, can be significant motivating forces.”

“[20] Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does or does not say. The statement is made after the witness’s memory has been ‘refreshed’ by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause the witness’s memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events. [21] It is not uncommon (and the present case was no exception) for witnesses to be asked in cross-examination if they understand the difference between recollection and reconstruction or whether their evidence is a genuine recollection or a reconstruction of events. Such questions are misguided in at least two ways. First, they erroneously presuppose that there is a clear distinction between recollection and reconstruction, when all remembering of distant events involves reconstructive processes. Second, such questions disregard the fact that such processes are largely unconscious and that the strength, vividness and apparent authenticity of memories is not a reliable measure of their truth. [22] In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.”

“88. …First, as has very recently been noted by HHJ Gore QC in CBX v North West Anglia NHS Trust [2019] 7 WLUK 57, Gestmin is not to be taken as laying down any general principle for the assessment of evidence. It is one of a line of distinguished judicial observations that emphasise the fallibility of human memory and the need to assess witness evidence in its proper place alongside contemporaneous documentary evidence and evidence upon which undoubted or probable reliance can be placed. Earlier statements of this kind are discussed by Lord Bingham in his well-known essay The Judge as Juror: The Judicial Determination of Factual Issues (from The Business of Judging, Oxford 2000). But a proper awareness of the fallibility of memory does not relieve judges of the task of making findings of fact based upon all of the evidence. Heuristics or mental short cuts are no substitute for this essential judicial function. In particular, where a party’s sworn evidence is disbelieved, the court must say why that is; it cannot simply ignore the evidence.”

“Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs”. [our emphasis] Similarly in paragraph [22] Leggatt refers to gauging “motivations”

“Sarah kept me informed about the progress of the Reorganisation and we would generally have had catch up meetings with the key project team members. There were many teleconference calls to monitor progress. If I had a concern, I would quite often discuss it with Sarah in person and only sometimes put it in an email. In part this is a practical thing because I am slow at typing but I also prefer talking through matters. This explains why there are not emails between me and Sarah on all aspects of the Reorganisation. I would probably only choose to put something in an email where I wanted to copy several people to make them all aware of it.”

“A. I don’t recollect seeing this one, but it doesn’t −− this actual schedule, but, yes, I would say driven by −− well, it’s back to this term about driven by tax, you know, tax heavily involved in it and obviously when the project team was pulled together, it’s, you know, multiple functions involved in it. And, you know, when it gets to Syngenta Holdings board meeting, there we’re not dealing with it necessarily as a tax project, we’re looking at the acquisition of this investment, which I would assume you’ll come on to later probably.”

“Further to our call yesterday the following summarises the main projects which we will be bringing to the table from the UK.”

“1. Tax optimisation project”; “2. Allocation of resources”; “3. Corporation Finance projects”

“i. Benefits 1. Reduction of UK tax which is now payable (e.g. value of SL £200m, debt of £100m, interest rate of 2% equals interest expense of 2 million saving tax of £460k (23% difference between UK and NV rates) 2. Interest rates low at present but will rise in future ii. Costs 1. Estimated at between £115k and £155k tax opinion, transfer pricing documentation, legal and valuation services”

“; £100 - £150 for forecasting to satisfy directors that long term commitments could be satisfied and additional resource would be required as there is no capacity this year due to SBS”

“A. My main recollection of the driver for the transaction was around the − you know, from a group angle now, so, you know, I sort of wear multiple hats, as I say, looking at a group angle was this differential tax rate between Holland and the UK. And rather than the UK tax saving, as it were, in its own right.”

“Forex - The loan for the purchase of Syngenta Limited will end up being with Syngenta Holdings and Treasury NV (at least the way things are currently structured). The loan will most likely be in sterling and this will create a forex issue. This is likely to be quite a large forex issue given the loan could be £500m or more. I know that Treasury had a big problem with this last time so I think we should set up a call with perhaps Bas and Mark to discuss the issues. Deloitte said that there are lots of ways to get around this but this will clearly need some thought.”

“• To simplify the UK group structure by reorganising the group to make Syngenta Holdings the holding company of all UK entities. • For Syngenta Holdings to purchase Syngenta Limited from SABV using a mixture of debt and equity, ensuring that the level and pricing of the debt can be supported and signed off on by HMRC using an ATCA. • To avoid any forex exposure as far as possible. The loan financing will be provided by Syngenta Treasury NV and will be in Great Britain Pound (GBP). • To ensure a deduction is available for the interest expense arising in Syngenta Holdings, a dividend trap situation is avoided and all tax legislation is complied with. • To ensure that the UK group can support the level of debt without adversely affecting its credit rating and avoid withholding tax on the interest payments. • To ensure all legal requirements are met.”

“an opinion to the effect that the valuation is materially correct and the assumptions made are reasonable, with an appropriate indemnity reflecting the magnitude of the transaction.”

“As I understand it, ‘debt push down’ is a generic term that means some of the debt owed by companies in the top of the Group being put into subsidiaries further down the Group structure (‘pushed down’ the Group).”

“Q. … But it is correct, isn’t it, there was no transfer of an existing debt; this was the creation of a debt, was it not? A. Yes. Well, I don’t know whether it was − there might have been debt at the top at the time as well. You know, the company − the group, rather, has been heavily geared. Q. But it wasn’t, so far as you’re aware, an assignment of a debt from up the group down to SHL? A. Not one particular debt, no.”

“I am just going through the information we have with regard to the debt push down project. As you know the fact that the Syngenta group has been streamlining over the last few years helps with our business purpose arguments in that there has clearly been a group drive to get rid of dormant companies and to get common entities to sit together.”

“I am worried about the status of the debt push down project and wanted to put together a quick update of my concerns in this area and how we are addressing them.”

“I already mentioned to Ed while being in Basel that I will escalate this issue within the organization in case Angela does not provide the required level of support & comfort during tomorrow’s phone call with Ed given the compelling tax savings at stake which should not be prevented due to resources issue, this being even more the case in view of the limited involvement expected from Shanghai finance team.”

“Please find attached a request for a new Hyperion reporting unit. We apologise that this was not sent in before the time limit but we weren’t aware that the deadline was so early. We need a new Hyperion reporting unit as we are performing a debt push down project in the UK. This project involves Syngenta Holdings purchasing Syngenta Limited for a mixture of debt and equity. Part of the project also involves Holdings becoming a US $ denominated entity as per the attached accounting note written by Alaster, ok’d by Simon Nardecchia and approved by the auditors. As we can’t change the currency of the existing Holdings unit on the system I believe we need to create a new Hyperion unit which is going to be US $ denominated to record the transactions which are going to take place. This project is a high priority due to the substantial tax savings which will be made by its implementation. We were told by Phil that we need your approval to get this new unit approved as the deadline has now passed so I am writing to ask you if you can please authorise this. I am in on Tuesday next week if you wish to discuss further or if you had any questions about the request.”

“Before the finalisation of the Corporate Finance Proposal, Sarah was involved in the preparation of the presentation on the Reorganisation to the Group’s Tax Leadership Team (“TLT”). This is an important step in the process; TLT sign off gives confidence that there are no major tax problems arising from a proposal. I have not been involved in this or any other TLT meetings and cannot comment on how they are conducted.”

“• Objectives - Restructuring of UK group by purchase of Syngenta Limited (SL) shares so all UK entities are held under Syngenta Holdings Limited (‘SHL’) leading to structure simplification - Financing is required to achieve this objective and the restructuring will therefore result in an interest deduction in SHL - DCF valuation approach proposed to be used for valuation of SL shares • Savings - Anticipated tax saving of approx $6.9 million per year (subject to the timing of the debt repayments) and based on a value of SL shares of $1,000m, a 50/50 debt equity split and an interest rate of 5% • Costs - Total cost: £170k (Ernst & Young £79,500 / Mayer Brown £25,000 - £30,000 / valuation of SCIC shares by PWC China circa £50,000” - Restructuring of UK group by purchase of Syngenta Limited (SL) shares so all UK entities are held under Syngenta Holdings Limited (‘SHL’) leading to structure simplification - Financing is required to achieve this objective and the restructuring will therefore result in an interest deduction in SHL - DCF valuation approach proposed to be used for valuation of SL shares - Anticipated tax saving of approx $6.9 million per year (subject to the timing of the debt repayments) and based on a value of SL shares of $1,000m, a 50/50 debt equity split and an interest rate of 5% - Total cost: £170k (Ernst & Young £79,500 / Mayer Brown £25,000 - £30,000 / valuation of SCIC shares by PWC China circa £50,000”

“I am not sure why I considered this important, but I expect it was because the valuation was primarily to determine the purchase price SHL would pay for SL.”

“A. Yes, well, say if we had paid too much and Syngenta Holdings had gone into liquidation as a result and there had been other parties that then, you know, third parties that came back and challenged the directors on what they’d done at the time. For example, you know, it’s a fundamental transaction and you want to get the price right. Q. And that’s what EY were doing, isn’t it? They were − if someone challenged you, you could say: well we went to EY and we had a very accurate, you know, valuation, third party valuation, an outstanding firm, you know, what’s the problem? A. Yes, so that’s why we − that’s what I wanted it to say, and hence have an appropriate indemnity as well, you know, we were relying upon their valuation for whatever challenge we may have had in the future from whatever source.”

“Q. Would you accept that by removing the references to tax, as you requested and they were removed in the final valuation report, would you accept that that would affect the manner in which the transaction might appear to HMRC? It would look more just like a straight commercial valuation, no mention of tax anywhere? A. Yes, I don’t think that was at the forefront of my mind.”

“This is to give you some advance notice that a Board Meeting of Syngenta Holdings Limited will be arranged just before Christmas to approve the acquisition of the Syngenta Limited by Syngenta Holdings Ltd and the refinancing of SHL in order that it has the funds to make the acquisition. This is a tax driven project and the necessary approvals from Basel will be obtained before the meeting. It will have no impact on employees – they will all remain working for their existing legal entities. The note from Sarah Carter, the UK Tax Manager, summarises the proposal.”

“I cannot remember why I used this phrase, however, having reviewed the slide that was attached to the email I think this is a reference to the tax saving for the Group as a whole.”

“A. No, well, as I mentioned, there were various reasons we I think could refer to it as tax-driven: there’s the saving, there’s the fact the tax team have been involved, you know, with the project manager role, so various reasons.”

“on the basis of what Sarah says in that letter to you, you would have been aware that the advantage of organising the affairs of the group in that manner was the tax saving.”

“Q… So in quite stark terms Sarah is saying: well, this slide which shows the tax saving, that’s the benefits of the transaction. So you would have understood from that the benefit of this transaction was the tax savings of $6.9 million? A. For the group, and again, to put the sort of this − when I’ve asked for Sarah to draft an email, which I can send out giving the directors the overview, you know, the directors are all curious folk, you know, Mark Peacock, you know, is at the very senior level within the group, or was, and they’re curious to know the group purpose as well as Syngenta Holdings’ purpose but it’s one of those where, you know, we all wear multiple hats, when we get to the board meeting we’re putting on the Syngenta Holdings hat and looking at it from that view, where obviously for that meeting this was pure background, you know, it wasn’t relevant to their decision directly.”

“A few small points - Page 2 para 1 under background can I please ask you to take out the reference to ‘facilitate UK debt push down’ and just leave the sentence to read - ‘with an aim to realign the group structure management is contemplating a restructuring plan’. The main aim is the UK reorganisation and not the debt, which is a consequence of the reorganisation in that SHL need to fund the purchase in some way. I would like that to be clear - thank you. It is also mentioned in page 6.”

“Q. So you agree with that. And that was so even though throughout this project has been described as a debt pushdown. So why would you want that removed, because this has always been described, has it not, as a debt pushdown? A. Because for me it left one part of the equation out which was a realignment of the group structure, and − Q. Thank you A. − my worry was always that the tax adviser would be too much focusing on this kind of − by not understanding where we were coming from.”

“… The formation of Syngenta was an extremely complex transaction. To avoid further complications at that time, it was decided not to try to combine the two entity hierarchies immediately after spin-off, this was left to subsequent Syngenta legal entity structure projects/processes. One of the very first such projects I was asked to review for reporting impact was a UK debt push down proposal, in late 2000, which would have achieved similar results to the one being presented now, but this was not implemented. The reason why the entity hierarchies have remained separate for so long is, I believe, mainly because there has never been an opportune moment to carry out the transfer until now. The UK group underwent significant restructuring in the early years, and the related costs were borne in the UK and not recharged to Basel. A tax deduction was available for at least some of these costs. This meant that there were periods when the UK entities’ combined forecast taxable profits would not have been high enough to allow them to take advantage of the interest deduction. I am copying Andy in case he wishes to comment further as he has similar experience to mine in both Syngenta and Zeneca organisations.”

“Simon has probably closer history, you know, recollection of what happened, but I cannot opine to this.”

“The main benefit of the proposal is to simplify the UK corporate structure and to streamline the internal dividend planning process. Moreover, the interest expenses for SHL resulting from the debt financing of the share purchase is tax deductible and leading to estimated annual net tax savings of USD 9.5m per annum currently.”

“The main benefit of the proposal is to simplify the UK corporate structure and to simplify the dividend planning process. SHL will require debt financing in order to finance the purchase and as a consequence of this an interest expense will arise for which a tax deduction will be available leading to estimated net tax savings of USD 9.5m per annum.”

“The main benefit of the proposal is to simplify the UK corporate structure and to simplify dividend planning. As a consequence of this we will take the opportunity to introduce a share of debt into the UK and a subsequent benefit of this will be to obtain a tax deduction for the interest cost that results from the debt needed to fund this purchase. We hereby kindly seek agreement to transfer Syngenta Limited, along with its subsidiaries, to Syngenta Holdings.”

“Q. I just wanted to ask you about your understanding of that because from your point of view that wasn’t a tax saving for SHL because you didn’t have any taxable profits. Did you understand that that would be a saving for the group as a whole? A. Yes, yes. My general view − it may not have been that precise number, but my general view from the various looks at this reorganisation were that it was due to this difference between the UK and Dutch tax rates.”

“can give the wrong impression about how the Group viewed the benefits of the Reorganisation. It is important to understand that the structure is the same in every Corporate Finance Proposal: a short section on the benefits and then pages of technical analysis. It was clearly understood within the Group that this proposal was about simplification and achieving a single holding company. We didn’t need to repeat to the CFO the detail of the benefits every time there was a proposal for a country simplification because we had done lots of them and he knew the benefits. However, the Corporate Finance Proposal needed to go into the technicalities of the various functions involved for the CFO to understand and assess the potential issues.”

“Broadly Syngenta Group has sought to simplify the Group Structure since its formation. As such the UK Reorganisation should be considered in this context. Accordingly the acquisition will facilitate this simplification.”

“SHL will finance the purchase of SL by getting a USD loan from STNV and by issuing shares. SL has been valued externally by Ernst & Young at £1.4bn (the valuation report is contained in Appendix B). The level of debt to equity will be £600m of debt to £800m of equity. Advice was provided by EY in relation to this proposed split. Whereas HMRC may well not accept a level of Debt to EBITDA of 6:1 it is likely that they will accept either a 5.5:1 or 5:1 ratio provided the interest cover is around 3.”

“Finally, I have also seen the slide in the Finance Leadership Team presentation which states ‘Timing – Why now? – APA finalised in 2010 – UK Tax losses utilised fully in 2009’ (Exhibit AK1 Tab 6). However, my recollection is that the timing was a pure coincidence. We needed to resolve the APA and foreign exchange concerns. By the time these were resolved, the UK tax losses had been fully utilised. This was not a result of any planning on our part that I can recall, it was simply when we could solve these problems.”

“Q … Now, the significance of losses being fully utilised was that if they were not fully utilised, then there might not have been sufficient profits against which to set deductions arising from the payment of interest on the loan. So that’s the significance of the losses being fully utilised, isn’t it? A. That is, but at the time there was − what I want to reiterate, or maybe say clearly, there was no whatsoever planification with the management of the use of the tax losses. This project started when we had − when we knew how to structure this project through the APA and the change of the functional currency, and then it got the okay from corporate finance, then was implemented, and would have dealt with whatsoever tax losses were there or not there, and they happened not to be there, but that was simply a pure coincidence.”

“• 2008 - Capital reduction • £380m distribution to Syngenta Alpha B.V.(‘SABV’)/SPARTAG financed through cash reserves • 2009/2010 - Profit repatriation streams • £16.5m dividend distributed in 2009 and £50m dividend proposed for distribution in Dec 2010 • Early 2011 - UK reorganisation and Debt push down - £600m/$950m debt introduced in Syngenta UK” • £380m distribution to Syngenta Alpha B.V.(‘SABV’)/SPARTAG financed through cash reserves • £16.5m dividend distributed in 2009 and £50m dividend proposed for distribution in Dec 2010 - £600m/$950m debt introduced in Syngenta UK”

“To underline the strategic aspect, it may also be a good idea to include a slide showing the aggregate est. tax savings resulting from the three stages approach (if this can be done nicely and without too much work and trouble).”

“First of all apologies for not having been in a position to say you goodbye yesterday having to attend a meeting on divestment project in a time critical stage which took much longer than expected. In the meantime I received many feed-backs and echoes on your presentation made to the FLT which all were very positive including John Ramsay’s one who walked late afternoon into my office. Well done, you both can be proud not only of the outcome tax savings but also on the way you manage this project successfully towards its implementation stage while having to address so many different stakeholders.”

“• UK — Syngenta Limited • Two UK sub groups requiring legal entity structuring • Excess cash in the UK • Balance sheet position strong • Timing - Why now? • APA finalised in 2010 • UK Tax losses utilised fully in 2009” • Two UK sub groups requiring legal entity structuring • Excess cash in the UK • Balance sheet position strong • APA finalised in 2010 • UK Tax losses utilised fully in 2009”

“I see that the final bullet point on the second page of the Director’s briefing slides states “UK Tax losses utilised fully in 2009”

“• SHL to become USD denominated company to avoid group functional currency exposure (since the loan will be in USD). • Syngenta Treasury NV (‘STNV’) to lend $950m to SHL. • SHL to purchase SL shares from SABV for $2.2bn with consideration paid by issuing $1.25bn of shares and drawing the $950m loan granted by STNV. • To maximise tax savings and avoid foreign exchange exposure project proposed to be implemented ASAP.”

“Q. … So the amount of the debt, then, from the directors’ point of view would be determined by what EY thought was acceptable under the thin cap rules; is that a fair statement? A. Well, also primarily that they can pay it, so I think back to paying $2.2 billion, you know, for an investment, they want − and they’ve got to be able to service the interest, so priority one is being able to service the interest.”

“• If for any reason SL’s profits reduced drastically this could result in: - An impairment of SHL investment value in SL - Tax deduction for interest being restricted - Inability to pay interest • In this scenario SHL could: - Issue more shares and use funds to repay part of loan - Convert share into reserves to offset impairment loss (‘capital reduction’)” - An impairment of SHL investment value in SL - Tax deduction for interest being restricted - Inability to pay interest - Issue more shares and use funds to repay part of loan - Convert share into reserves to offset impairment loss (‘capital reduction’)”

“The Valuation Report was prepared to give the directors of SHL an external expert view on the valuation of SL. It was the key document in my mind. This was a massive transaction from the directors’ point of view, the directors were not experts in valuing companies and I wanted an external specialist to have approved the valuation. I did not want an in-house valuation; I wanted the valuation to have EY’s ‘seal’. The directors wanted to be sure they were fulfilling their legal duties as directors of SHL under s.172 Companies Act 2006 (e.g. the duty to act in the way that would be most likely to promote the success of the company for the benefit of its members as a whole). These duties extended beyond the interests of the shareholders. If the directors were ever challenged about their decision by anyone, the Valuation Report showed that they had taken proper advice at the time. That is why I drew EY’s attention to the extract in the engagement letter outlining their responsibilities (Exhibit ADJ1 Tab 10). I was also aware that HMRC might review the valuation because it was my understanding, albeit as someone not in the tax team, that HMRC normally ask for evidence to support the valuation of large intra-Group transactions.”

“It was the biggest transaction I had been involved with and was probably the biggest that most of the directors had been involved with. Directors ultimately have some personal liability in these matters if something goes wrong and the size of the transaction meant that any potential issue would be more serious for the directors.”

“Wondering whether it would not be appropriate to include one sentence about the overall merit of the transaction for SHL such as the concentration of shareholding in all UK companies into one hand, thereby further reinforcing SHL role & purpose as UK holding co. which could be used as further (defense) argument in case being challenged by the UK authorities about the purpose and benefits of the transaction.”

“Thanks for this. Julian has been through the minutes and is happy from a tax perspective but happy to add this in, it is an important point. I will liaise with Andy who is amending anyway.”

“This relates to another point that it is important to clarify. I am aware of a couple emails in which I suggested that information for SHL’s directors place more focus on structure simplification and less on the tax benefits… I knew that the Reorganisation was expected to result in a substantial tax benefit and that this was a benefit that was quantifiable and easy to understand. I also knew that several UK people including Andy Johnson had spent a lot of time focusing on the valuation of SL and the amount that SHL could borrow, which was likely to result in too much focus on quantifiable figures. In these emails I was trying to ensure that the UK people, including SHL’s directors, who were less familiar with previous LES [ie Legal Entity Simplification] projects in other jurisdictions, remembered that the starting point and overall purpose of the Reorganisation was a within country reorganisation to produce a single holding company structure. I wanted this to be remembered to ensure that the reasons for the Reorganisation were well understood and considered by SHL’s directors and because as a Senior Group Tax Manager I was aware of potential difficulties that could follow if HMRC got the wrong impression.”

“(defense) argument in case being challenged by the UK authorities about the purpose and benefits of the transaction”

“SHL held the board meeting at which the Reorganisation was approved on 24 January 2011 (Exhibit ADJ1 Tab 22). I chaired the meeting, as I normally did at SHL board meetings. The key consideration for the SHL board was whether SL was a good investment for SHL. By a good investment I mean one that would give a good return and had a fair price and was therefore a sensible acquisition. At the time we were focussed on whether SL was worth what we were considering paying for it and that the dividend stream from the investment would exceed the interest cost.”

“We tend to draft board minutes in advance for the UK companies in the Group…, but these will be amended if any significant points are raised. For the avoidance of doubt, I expect that no amendments were made to the draft SHL board meetings following the meeting on 24 January 2011 that approved the Reorganisation (which is discussed in detail starting at paragraph 81, below) because we had had a management meeting earlier the same month and amendments had been made to draft minutes following that meeting, which I expect reflected some of the comments made at the “pre-meeting” and that no other new significant points were raised at the meeting on 24 January).”

“The meeting considered the profitability of Syngenta Limited over the last five years and the forecast profits in the Ernst & Young valuation report for the next five years. The forecasts for the profits of Syngenta Limited were prepared using data from Syngenta Global Marketing. This information was then used to complete forecasts for Syngenta Limited. It is noted that further discussions were had with key product managers, in particular the product manager for Azoxystrobin (a key product owned by Syngenta Limited). These discussions provided additional comfort that the level of forecast sales was reasonable and represented the best estimate. The forecasts show that Syngenta Limited is a company showing good prospects for growth over the next five years and the acquisition of Syngenta Limited would therefore provide the prospect for dividends in the future and a good return on investment. It was also reported that Syngenta Limited participated in a funded pension scheme, the Syngenta UK Pension Fund (“SUKPF”), covering the majority of employees in either a defined contribution section or a defined benefit section. The SUKPF was, on a number of valuation bases, currently underfunded (albeit that in late December 2010, Syngenta Limited made a payment of US$100 million to the SUKPF which had reduced such deficit and indeed may eliminate the deficit on certain bases). Syngenta Limited will be required (whilst the SUKPF is in deficit) to obtain the approval of the Pension Fund Trustee for future dividend payments. The Pension Fund Trustee directors had not expressed any concerns in principle about the possibility of reasonably sized dividend payments but had asked to be advised each autumn of the probable dividend payment so it could comment or raise any questions in a timely manner. On the basis of the anticipated growth, opportunities and dividend prospects of Syngenta Limited it was concluded that the acquisition of Syngenta Limited would be a good investment and the purchase of the share capital of Syngenta Limited should take place. Words and expressions used but not defined in these minutes shall have the meanings given to them in the Sale Agreement. It was noted that the Company and Syngenta Limited are both part of the Syngenta group of companies (the “Syngenta Group”) and the purchase of Syngenta Limited would result in a more streamlined UK group legal entity structure.”

“86. The key paragraph in the consideration of the proposal is the one on the third page that starts: ‘On the basis of…’. This paragraph was added between 7 January 2011 and 24 January 2011. What was really paramount was whether SL was a good investment and if we went through with the transaction whether SHL could pay the interest. The directors of SHL considered that we were buying an investment and wanted to make sure that all our homework had been done. 87. We were all familiar with SL’s business and believed in its growth prospects (as I discuss below), which meant that determining whether SL was a good investment for SHL was mainly based around getting comfortable with the valuation. This situation is always difficult with two group companies transferring an asset and determining free market value; if the price set is a good deal for one it is liable to be a bad deal for the other. However, we noted that the proposed price was at the low end of the valuation. 88. The directors had received the valuation report in advance and had been left to go through it on their own. It helped that EY had signed off the valuation. Despite this, during the board meeting or the meeting on 14 January 2011, we considered some of the key assumptions in the valuation. In another paragraph added between 7 January 2011 and 24 January 2011, the board minutes mention the discussions that Sarah and I had met with product managers (which I have referred to in paragraph 46, above). This looks like the sort of explanation that I would have given to SHL’s directors when I briefed them at the meeting on 14 January 2011. We discussed how to make sure that the forecasts had good substance behind them; people can sometimes be optimistic when preparing forecasts and we wanted to make sure these forecasts were realistic. I had confirmed that the forecasts were realistic by speaking to the product managers and testing their assumptions. 89. I considered that SL was a good investment for SHL for three reasons. First, the price was at the lower end of the valuation range given by the DCF valuation. I had spent a lot of time on the valuations and had formed my own view of their reliability. Second, the price compared favourably with the valuations given by the comparable valuation. Third, there was a lot of positivity at the time about the future for Syngenta and I thought there was the potential for SL to achieve more growth and higher profits than was factored into the valuation. 90. The Board’s positivity about the prospects for SL arose from our pre-existing knowledge about SL, the Group and the agrochemical market. For example, in 2008 workshops were held across Syngenta as part of a brand initiative which included presentations about the Group’s expectations of sales growth resulting from increased demand for food, feed and fuel together with global population growth. This was backed up by Group crop protection sales growth in 2007 and 2008 of 11% and 22% respectively at constant exchange rates. We as directors would not have had the personal knowledge to be able to feel the same about an acquisition in a different sector (although in the unlikely circumstances that the Group asked us to consider an acquisition in a different sector, I expect Syngenta would then have engaged external advisors on that sector). With the benefit of hindsight, SL profit growth has not been as strong as we had expected until recently. While the factors that led to our positivity have not changed, what has changed is the desire, particularly in Europe, to grow crops using less chemicals. However, recent Group sales growth has been excellent. In 2021 Group crop protection sales increased by 19% and by 30% for the first 9 months of 2022.”

“So that also came into the − my rationale for it being a good investment as well, because when we looked at all of the projections for the dividend flow versus the interest, it appeared that we could − we had a lot of leeway, you know, we’d run scenarios on the interest payments with optimistic scenarios and pessimistic, and the base scenario, and all the scenarios showed that there would be plenty of dividend income with which to pay the interest, we wouldn’t have any problems repaying it. So not only did it look like a good investment, one that could outperform what we were paying for it, but it also looked that we were financing it in a way that wasn’t going to give us as directors any issues.”

“From an outlook perspective, escalating demand for food, feed and renewable fuel across the globe has led to depleting stocks of agricultural commodities and rising food prices. As food prices rise, farmers may be willing to invest more in crop protection as the cost relative to their potential revenue decreases.”

“Principal risks for SL in the crop protection market include: royalty erosion due to increased competition upon expiry of patent protection; changes in the regulatory framework in key territories; and political changes with respect to policy on agricultural matters. SL also faces risks in relation to R&D due to the significant expense, the uncertainty and the delay between discovery, and potential revenue generation. Furthermore, products currently under development may not be commercially viable, nor comply with the regulations in place at the time of launch.”

“Management believe that pricing pressure in the area of crop protection has historically contributed to eroding margins in the sector, with SAG reporting a 7% annual fall in prices in established crop protection products in Q3 2010. Management anticipate long term trends on pricing to be very competitive and note that price erosion is common in the market.”

“Our view on value is based on the information provided to us by Syngenta management (“Management”). In the context of the valuation assignment, we have not sought to verify the accuracy or completeness of the data, information and explanations provided by Management, who are responsible for this information.”

“We are currently looking at a reorganisation of the UK group to simplify the UK group structure which as you are aware is held below two separate UK entities”; (3) the “Accounting Issues Note” prepared by Alaster Ndlovu on or around 28 July 2010, which describes the background as “simplifying the ownership structure of UK Syngenta group companies”; (4) the presentation to the group’s Tax Leadership Team (10 November 2010); (5) the email “UK Reorganisation – notification of steps” (Ms Carter to Mr Johnson, 30 November 2010); SHL’s written closing submissions describe this as “the email sent by Mr Johnson to the other directors of SHL on 1 December 2010which described the proposal as ‘to simplify the UK group by SHL purchasing SL from SABV’”

“Simplification UK corporate structure: debt pushdown for Jan 2011”

“• Simplify and optimize the group legal structure by streamlining the number of legal entities • Identify those entities needed for business purposes, regulatory requirements and other special purposes versus those that can be subject to dissolution • Set agenda for Corporate Finance projects supporting the Legal Entity Simplification process • Structure those projects via a standardized procedure involving various Corporate functions and country organizations”

“To my recall, it started with some reorganisation in countries like in Germany where we, for the first time, applied a simplified corporate structure, the single holding company set up, which was made in Germany in order to have a consolidated account, consolidated tax account, one fiscal unity, meaning could you offset tax losses with profits within the fiscal unity, which allowed you also to have consolidated thin cap rules, and in Germany, even I would say better, VAT exemptions on all the transactions which would happen between the member of the VAT fiscal unity, being under the German holding company. From that, we moved to other countries and applied the same structure, having similar merits. That was the France tax consolidation, that was Spain as well tax consolidation. The group found it beneficial to have this simplified structure being implemented in all of the countries where there are reorganisations because they also had some administrative benefits next to the ones I mentioned before, because in all of these legal entity simplification projects there were not always tax merits, there were more costs. The merits, they were different from one country to the other, but overall they lead to a simplification of the group, and the simplification of the group is not only, as I understood it, through my years working with Syngenta by the reduction of the number of entities, I hope you had a look at the chart, not to look at the fancy colours within the chart, but basically the number of entities. We started I remember was in the early days of Syngenta 232 entities. Then Syngenta was trying to grow through acquisitions, mainly in the seeds area, this is where Syngenta was less strong than in agrochemical sector, something like 74 additional companies came in, we arrive to a total of, if you make it to the sum, 312, from 2001 to 2010, but in 2010 we reduced it to 191. That’s 121 entities less. That’s close to 40% less. So this was a first concern, and the second concern was to have a lean structure in order to have in the organisation optimised from a business and administrative perspective, and the single holding company structure had the idea, very simple idea basically, from organisational perspective, holding entities to the holding activities, operation do only operations, and we had within the group many entities which had participations here, participations there, doing a little bit of business. So everyone is focused on what it’s supposed to do.”

“I understood there to be simplification benefits arising from the Reorganisation. For example, if there were contracts that related to all our UK sites, they could be signed on behalf of SHL rather than each entity thus reducing administration. A similar thing applied to the share incentive plan where it had been the case that one contract had to be signed for SHL and one for SL. The Reorganisation also offered the minor benefit of making it easier to manage the relationship with the Dutch holding company, SABV, because there would only be one set of directors dealing with it.”

“Q. So of those two simplification benefits that you refer to of SL being owned by SHL, it’s fair to say that neither of those benefits were particularly important? A. They’re relatively small benefits. I mean, we have had some other benefits, we’ve recently got a UK president, a new UK president, who’s a director and have been appointed to the holding company one, SHL, you know rather than being appointed to all of them, which has been a useful benefit for him because he’s not had to join − be director on multiple companies, and I think that we’ve had some other smaller benefits as well. Q. And is it fair to say that the benefits of what have been referred to as legal entity simplification weren’t that relevant to you as a director of SHL because they benefited the group rather than SHL? A. Possibly. … Q. The absence of those two factors, those two benefits of legal entity simplification were not something which had unduly impeded the business of either SHL or SL? A. Yes, that’s correct.”

“Q. … I think what we’ve established in our questions yesterday, and indeed, it’s what you say in your witness statement, is that the benefits of this exercise weren’t a significant benefit for SHL. A. As perceived by me.”

“At the time we carried out the Reorganisation we still had lots of country reorganisation projects to do. We knew we needed to do all these projects, but we had limited resources which meant they had to be prioritised. Often the country reorganisations had more costs than immediate tangible benefits. Where there was a clear additional benefit, like the interest deduction in the UK, it was easier to push the project up the priority list of projects, but there were always times when the Group had room for these sorts of projects. The overall aim for the Reorganisation was to have the single holding company structure, but without the interest deduction, the Reorganisation would have happened later and other projects on the list would have been prioritised.”

“Second, the sale of SL shares resulted in a significant capital gain for SABV which translated into an extraordinary profit. The profit released reserves that could be distributed up the Syngenta Group. In order to pay an interim dividend, an amount in cash equal to the dividend needed to be available. Using debt funding meant that SABV had the cash to pay an interim dividend, which would not have been the case if only equity funding had been used. Around this time, the agrochemical industry was returning lots of cash to shareholders and Syngenta was looking for big pockets of profit to fund large dividends from SAG. This made the Reorganisation of even more interest to the Group because it solved one concern about having enough capacity for SAG to pay dividends. I can see from a slide pack titled “Dividends 2012 & Dividend Planning 2013-2017” that in 2011 SABV paid a dividend of $933m to its parent company (“SPartAG”) and SPartAG paid a dividend of $1,194m to SAG (Exhibit AK1 Tab 7 – page 24). By comparison, in 2012 it was not proposed that SABV pay a dividend (Exhibit AK1 Tab 7– page 15), while SPartAG still had to fund a proposed dividend of $1,531m.”

“It’s a wider, it’s a wider definition. So it’s not precisely the wording you’re mentioning, but for me this was kind of a broader, how could I say, reference to what was going to happen in terms of a dividend and dividend distribution.”

“Sarah was the project manager for the Reorganisation. I was not involved in the decision that Sarah be the project manager, but it made sense for several reasons. Sarah had played a key role in an earlier restructuring. One of the key risks identified in the Reorganisation was ensuring HMRC was happy with the transaction from a tax perspective and that SHL could get a deduction for its interest payments (in my experience, the most common risks in transactions and acquisitions are tax, pensions and environmental).”

“• APA finalised in 2010 • UK Tax losses utilised fully in 2009”

“The reason why the entity hierarchies have remained separate for so long is, I believe, mainly because there has never been an opportune moment to carry out the transfer until now. The UK group underwent significant restructuring in the early years, and the related costs were borne in the UK and not recharged to Basel. A tax deduction was available for at least some of these costs. This meant that there were periods when the UK entities’ combined forecast taxable profits would not have been high enough to allow them to take advantage of the interest deduction.”

“at the time Syngenta was formed in 2001 there was no advance pricing agreement (“APA”) with the UK tax authorities. This made it difficult for the UK tax team to prepare returns and for Swiss headquarters to understand the profits of the UK sub-group. It also made it very difficult to estimate business and profit forecasts, which were important for valuing SL. For the Reorganisation to take place, a reliable valuation of SL was required for the boards of SHL and SABV and for transfer pricing. When SL’s second APA was agreed in 2009, this in a large part simplified the necessary valuation of SL, which made it possible to carry out the Reorganisation. An APA was required for SL regardless of any reorganisation plans for SL. This is because SL generates a lot of revenue, but all of its transactions are with Group entities. Most of those transactions relate to IP, much, but not all of which, SL owns. Without an APA these factors made it very difficult to determine SL’s taxable profits after transfer pricing considerations. SL needed an APA to provide simplicity and certainty for the UK tax team, regardless of the Reorganisation. The first APA that SL agreed with the UK tax authorities was partly based on the residual profits of Syngenta Supply AG. This was complex to administer and did not provide certainty and simplification. The second APA was instead based on a defined royalty reward on the Syngenta Group’s sales, which made arm’s length profit easier to define.”

“We could find a way to reorganise which was pretty much similar to what finally happened, but the group always basically at the end of the day made a stop to the project, and it’s relatively easy to understand because when you had such a big numbers and you have a portion of this number is debt, and you have a group which is US dollar denominated and you are in a debt which is going to be raised in pounds sterling because the UK entity is based in the UK, you have a mismatch, and a mismatch of about, in currency, half a billion, 600 million, over years with interest to come on it. I hardly see any group treasurer who would say we go ahead with the project because it means that if you don’t hedge the risk is much too big, so the CFO would say no, and if you do hedge it means the project costs a fortune. Hedging, as always, it’s cost, and it’s not cheap, especially at the time there was I think a gap in interest rate between the pound sterling and the US dollar, and this is what drive the price and the cost of a swap, so the higher the differential the more basically you pay.”

“Being a position of a CFO, correct, and you come and you tell ‘I have a 600 million unhedged pounds sterling position, can we live with it?’ If you find one, I had to call many of them, right. Why? Because the magnitude of the risk is simply too big. So no group would do that, and secondly, if I recall well, on the group treasury policy which was one of these documents published by the group treasury, there is foreign risk management, correct, policy, part of it, which is of course to hedge, and I don’t know if they mention the two hedges, natural or with external hedges, but it has to be hedged. It has to be hedged one way or the other. So that was a key request from group treasury a part of their policy.”

“This however, would not provide the benefit of the leverage which the preferred option will bring; see the treasury consideration section.”

“7. Treasury considerations 7.1 Leverage This transaction leverages the UK group by introducing debt of $555m. This provides a tax benefit to the group of $12m (debt of $555m at interest rate of 7% deducted at tax rate of 30%). It is therefore important that the UK group has the capacity to cover the interest deduction. There are 2 elements to this: • Profitability • Thin capitalisation requirements”

“• UK tax optimisation • Reduction of the Group long GBP position • Unification of the shareholding structure for the UK group of companies”

“• No FX exposure resulting from implementation of the UK debt push down project • FX issue in connection with long GBP hedge position solved”

“I don’t think it is particularly difficult to manage the forex, but I think it would help to have people involved from the UK with a track record of doing this. We would be happy to re-engage in conversations with Antoine, treasury and the UK to develop a plan that meets everyone’s needs, and I’m confident that this can be done in a relatively straightforward manner.”

“Plant Science Research and Development and IP ownership A major factor will be how the company decides to fund the Plant Science (PS) research carried out in the UK in future. If the costs (and therefore the ownership of any IP generated) is to remain here, then it is unlikely that the UK group will generate any taxable profits for the foreseeable future. This renders any debt push down into the UK pointless.”

“I understood from the slides prepared for SHL’s directors that the Reorganisation and the resulting interest deduction would have tax benefits for the Group. The Group tax benefits may have been mentioned during the board meeting as background information for the directors. It gave us the bigger picture and contributed to our understanding of why the Group wanted this transaction to take place.”

“Q. Which, as we explored earlier, state the main benefit of the reorganisation was the tax saving of £6 million for the group. A. Yes, but, as I keep saying − sorry to be a broken record − you know, that was the background, you know, when we were making the decision with our directors’ hats on for Syngenta Holdings it was around did we want to buy this investment. Q. Yes, and there’s no mention of this in the detailed minutes. Now, we can turn those up. They’re at your exhibit ADJ1, tab 22, which is core bundle tab 10, page 329. If you scroll down and turn to page 330 is where the minutes are. There’s no mention in those minutes of the main benefit of this being a tax saving of £6 million. A. Well, it’s not a benefit for Holdings. That was background from the group. The benefit for Holdings is getting this valuable investment.”

“based upon my experience, sizable acquisitions are never funded entirely by equity, and I cannot remember a scenario where a sizable acquisition would have been funded this way.”

“The directors of SHL at the time of the Reorganisation were me, Kirsten Elce, Ronnie Hendrie and Mark Peacock. Mark, Ronnie and I were also directors of SL. Ronnie had detailed knowledge of the site at Grangemouth. Kirsten’s main role was a global one but she was invited to the UK finance leadership meetings, which kept her up to date with UK matters.”

“I only understood why the Group wanted to do the Reorganisation from the context of those slides and the Corporate Finance Proposal.”

“Q. Would that have been the same for your fellow directors, do you think? That’s the information they had as well, was it? A. Yes, they’d have had less information than me. Kirsten may have had a little bit more information as well. Q. Did she have a post at group level as well, as I recall? A. Yes, yes, and she’s very familiar with these transactions or, you know, the − being done for lots of different countries within Syngenta, so she’ll have been more, perhaps probably, you know, in a broader context, more familiar than I was. But certainly Ronnie, whose background was, you know, production site manager, he would’ve had no background on this, you know. Mark, I think, probably would have had some with his broad background.”

“While it depends on the proposal under consideration, these points show how the directors’ considerations interact with the Group’s purpose. Generally, if something is beneficial for the company it is beneficial for the Group and vice versa. However, this is not always the case, and where it is not, the directors act in the interest of the company. If there had been an issue with the proposal, we would have worked with the Group to tweak the proposal to ensure that it benefitted SHL. If there was a fundamental disagreement, for example, if SHL was being asked to pay a price substantially above the independent valuation for SL, then in my view the directors would not have approved the transaction. I would rather have resigned as a director of SHL. However, that was extremely unlikely to occur because of the process that Syngenta goes through in preparing a proposal like the Reorganisation.”

“An example where the board of a UK company identified a major problem with a proposal suggested by the Group was the planned relocation in 2015 of functions performed by more than 200 people from Basel to the UK. The Group had considered basing these functions in various locations in different countries and had decided on Manchester in the UK. The board of SL was asked to approve a lease of office space and, separately, a contract for the provision of intra-Group services (to be provided by the employees who would be based at the Manchester site). The intra-Group services were going to be charged to Basel at cost plus 5 – 5.5%. The contract and lease were considered by the board. The board of SL identified a problem with the termination clauses in the services agreement. The notice period in the intra-Group services contract was shorter than the notice period for the lease, which meant SL could have been left paying rent for office space for which it no longer had any use. The board sent the contracts back asking for the termination clauses to be amended. As a result of the board’s concerns the contract was amended to say that if the service recipient terminated the contract prior to the 7th anniversary and SL was unable to negotiate an early exit from the premises or sub-let the premises, then the service recipient would pay SL a sum equal to the rent until SL could end the lease.”

“if there was no tax deduction for the interest but the Reorganisation was still supported by the Group for another reason and SHL could still meet the interest payments I expect the board would still have approved the Reorganisation.”

“Similarly, I think the Reorganisation would have gone ahead if SHL’s shareholder was broadly neutral about the transaction although in that case SHL’s directors might have wanted a more explicit statement of their position.”

“… SHL’s shareholder, SABV, was the other party to the sale, which constituted implicit approval. We still thought about getting explicit shareholder approval because of the size of the transaction and because we had agonised about the valuation. Even though shareholder approval gives us confidence in a proposal we still have to make sure the plan works for the other key stakeholders (e.g. pension fund, employees, etc.).”

“Q. So I think what you’re saying here is that, as directors, you were concerned to act in the best interests of your shareholders having regard to your fiduciary responsibilities, and the group wanted this transaction to go ahead, it led to a significant group tax benefit, and provided you were satisfied about all the various issues which were specific to SHL, then you would be happy to accommodate them? A. Yes, or to paraphrase my own words, you know, as long as it was in the interests of − it was a good decision for Syngenta Holdings, it was in the best interests of the company. Q. So again, this is just to really be clear about this, so provided that you and your fellow directors were comfortable with the proposed acquisition from the point of view of SHL, all those factors we’ve looked at, then you were happy for SHL to play its part in this group project? A. In essence, yes, you know, we were looking at it from an SHL angle. We could see benefits, you know, lot of benefit, so why not go ahead? It made perfect sense.”

“This is a tax driven project” in the cover email, which he accepted referred to the tax saving. The email of Ms Carter, which he forwarded to his fellow directors, stated that the UK taxable group income could be reduced by the interest deduction, generating tax savings of $7,000,000 per year. The accompanying slide contained a calculation of the tax benefits to the group. The notes page to the slide stated: “This slide shows the benefits of the transaction”

“A. My main recollection of the driver for the transaction was around the − you know, from a group angle now, so, you know, I sort of wear multiple hats, as I say, looking at a group angle was this differential tax rate between Holland and the UK. And rather than the UK tax saving, as it were, in its own right” and (the following day): “I just wanted to ask you about your understanding of that because from your point of view that wasn’t a tax saving for SHL because you didn’t have any taxable profits. Did you understand that that would be a saving for the group as a whole? A. Yes, yes. My general view − it may not have been that precise number, but my general view from the various looks at this reorganisation were that it was due to this difference between the UK and Dutch tax rates.”

“A. Yes, so there are benefits, but they’re not great. Q. They’re not huge. A. As perceived by me as well as (inaudible).”

“Q. …you say: ‘and I understand from having seen Antoine Kuntschen’s witness statement in draft, the ability to generate distributable reserves for SABV.’ But again, just to clarify, that’s something that you only understand from having seen Antoine Kuntschen’s witness statement in draft?”

“The main purpose of SHL’s directors in entering into the Loan was to obtain the funds necessary to acquire SL, which they did because they considered that doing so was a good investment that would allow them to achieve a good return for their shareholders. The directors believed SL was a good investment because they expected dividend income from the shares to exceed interest on the Loan and the value of SL to grow.”

“92. Once satisfied that the price for SHL was good we turned to consider the loan. The opportunity to acquire SL was effectively offered to SHL packaged together with the loan. The SHL directors did not really have a choice of funding because the structure had been signed off after going through the Corporate Finance Proposal process, which I had been involved with. However, if we had objected for a valid reason, I would have expected the funding structure to have been changed. For example, if we had looked and said the debt would be too high to service. This did happen in respect of the timing of interest payments. Early drafts of the loan agreement had interest being paid quarterly. At my request… this was changed to an annual payment, which was a useful change because dividends were usually paid at the end of the year and SHL would otherwise have had to use a facility agreement to fund interest payments. 93. As this shows, by the time of the meeting I had commented on the loan agreement and been involved in reviewing SHL’s ability to make interest payments, so I was unlikely to have any serious concerns by the time of the meeting. If one of the other directors had looked at the calculations and spotted a significant flaw then we would not have approved the draft board minutes. The Group may then have come back to us with a lower valuation or a lower level of debt. I find it hard to imagine a situation in which the Group offered SHL all equity funding because of the benefits that arose to the Group from the debt (being the differential tax saving and, I understand from having seen Antoine Kuntschen’s witness statement in draft, the ability to generate distributable reserves for SABV), but if the Group had offered such a structure, then I expect that SHL’s directors would have approved it. 94. When considering the loan, we were primarily concerned with the ability to pay interest and the leeway SHL had if there were interest rate increases.”