A: On October 29, 2014, the Board of Directors of FCA announced its intention to separate the Ferrari business from FCA. The separation began with a restructuring that established Ferrari N.V. (“Predecessor Ferrari”) as the new holding company of the Ferrari group and the subsequent sale by FCA of 10% of the outstanding share capital of Predecessor Ferrari in an initial public offering (“IPO”) and concurrent listing of the common shares of Predecessor Ferrari on the New York Stock Exchange (the “NYSE”) under the symbol “RACE”. After the IPO, FCA owned approximately 80% of the outstanding share capital of Predecessor Ferrari. Through the remaining steps of the separation, FCA’s interest in the Ferrari business was transferred or “spun off” to holders of FCA shares on a pro rata basis and to holders of FCA’s 7.875% mandatory convertible securities (“MCSs”).
A: As confirmed by the Italian Revenue Agency in the tax ruling issued on October 9, 2015 (the “Italian Tax Ruling”), the receipt of Ferrari shares pursuant to the spin-off should qualify as a generally tax-free transaction for Italian income tax purposes for holders of FCA shares and therefore:
As the MCSs qualify as atypical securities (titoli atipici) for Italian tax purposes, the conversion of the MCSs into Ferrari shares may give rise to a taxable gain or deductible loss for Italian holders of MCSs. The actual tax treatment of the gain or loss depends on the individual circumstances of the Italian holder of the MCSs and in particular on the accounting principles adopted by it in drafting its financial statements.
Further, as confirmed in the Italian Tax Ruling, the merger of Predecessor Ferrari into Ferrari in connection with the spin-off should qualify as a generally tax-free transaction for Italian income tax purposes and therefore an Italian holder should recognize no gain or loss upon the receipt of Ferrari shares for Predecessor Ferrari shares for Italian income tax purposes.
For Italian income tax purposes, the distribution of €0.01 per share of FCA would be treated as a dividend in the hands of non-Italian holders (without a permanent establishment or fixed base in Italy) and of certain Italian holders to the extent that the distribution exceeds the tax basis that such holders have in their FE Interim B.V. shares after the second Dutch law demerger. For Italian corporate holders, the distribution may qualify as dividend (potentially benefiting from participation exemption) or capital gain to the extent that the distribution is paid out of, respectively, profits reserves or equity reserves.
For a more detailed description of the Italian income tax consequences of the spin-off see Annex A – “Certain Tax Consequences of the Ferrari Separation”.
This information is not intended as tax advice. You are urged to consult your tax advisor as to the specific tax consequences to you of the spin-off under applicable tax laws.
A: As confirmed by the Italian Revenue Agency in the tax ruling issued on October 9, 2015 (the “Italian Tax Ruling”), the receipt of Ferrari shares pursuant to the spin-off should qualify as a generally tax-free transaction for Italian income tax purposes for holders of FCA shares and therefore:
As the MCSs qualify as atypical securities (titoli atipici) for Italian tax purposes, the conversion of the MCSs into Ferrari shares may give rise to a taxable gain or deductible loss for Italian holders of MCSs. The actual tax treatment of the gain or loss depends on the individual circumstances of the Italian holder of the MCSs and in particular on the accounting principles adopted by it in drafting its financial statements.
Further, as confirmed in the Italian Tax Ruling, the merger of Predecessor Ferrari into Ferrari in connection with the spin-off should qualify as a generally tax-free transaction for Italian income tax purposes and therefore an Italian holder should recognize no gain or loss upon the receipt of Ferrari shares for Predecessor Ferrari shares for Italian income tax purposes.
For Italian income tax purposes, the distribution of €0.01 per share of FCA would be treated as a dividend in the hands of non-Italian holders (without a permanent establishment or fixed base in Italy) and of certain Italian holders to the extent that the distribution exceeds the tax basis that such holders have in their FE Interim B.V. shares after the second Dutch law demerger. For Italian corporate holders, the distribution may qualify as dividend (potentially benefiting from participation exemption) or capital gain to the extent that the distribution is paid out of, respectively, profits reserves or equity reserves.
For a more detailed description of the Italian income tax consequences of the spin-off see Annex A – “Certain Tax Consequences of the Ferrari Separation”.
This information is not intended as tax advice. You are urged to consult your tax advisor as to the specific tax consequences to you of the spin-off under applicable tax laws.
A: FCA expects the receipt of Ferrari shares pursuant to the spin-off to qualify as a generally tax-free transaction for U.S. federal income tax purposes. Assuming that the spin-off so qualifies:
Further, FCA expects that the merger of Predecessor Ferrari into Ferrari in connection with the spin-off should qualify as a generally tax-free transaction for U.S. federal income tax purposes. Assuming that the merger so qualifies, a U.S. holder should recognize no gain or loss upon the receipt of Ferrari shares for Predecessor Ferrari shares for U.S. federal income tax purposes.
The Company expects the distribution of €0.01 per share of FCA to be generally treated as a taxable dividend for U.S. federal income tax purposes.
However, the U.S. federal income tax consequences of the spin-off are complex and uncertain. For a more detailed description of the U.S. federal income tax consequences of the spin-off and a description of certain possible alternative characterizations see Annex A – “Certain Tax Consequences of the Ferrari Separation”.
This information is not intended as tax advice. You are urged to consult your tax advisor as to the specific tax consequences to you of the spin-off under applicable tax laws.
A: Yes, following the spin-off, certain terms of the MCSs will be adjusted to reflect the value of the Ferrari shares allocated. These include the initial price of the FCA common shares which were offered concurrently with the MCSs, the threshold appreciation price and the stated amount (i.e., the number of FCA shares that correspond to each unit of MCSs (corresponding to $100 in notional amount)). These terms are used together to determine the conversion rate that will determine the number of FCA common shares into which each MCS will be converted at the mandatory conversion date, December 15, 2016. The initial price and threshold appreciation price will be adjusted by multiplying them by the ratio of (i) the average daily VWAP (volume-weighted average price) of the FCA common shares for the ten trading days following the spin-off (expected to be January 4th through January 15th) to (ii) the sum of (a) the average daily VWAP of the FCA common shares during the same period and (b) the average daily volume-weighted average price of the Ferrari common shares for that period, multiplied by the spin-off ratio (i.e., one Ferrari common share for every ten FCA common shares) of 1/10.
Expressed as a formula, the adjustment would work as follows:
With Value1 being the initial number value as applied in the MCS Indenture; Value2 being the value after adjustment; FCA VWAP being the average of the 10 daily VWAPs of FCA shares over the trading period and Ferrari VWAP being the average of the 10 daily VWAPs for Ferrari shares. The 1⁄10 multiplier for the Ferrari VWAP simply accounts for the one-to-ten distribution ratio in the spin-off in which one Ferrari share is to be received for every 10 FCA shares held.
These calculations will be performed by Conv-Ex, the calculation agent for the MCSs.
For illustrative purposes only, assuming that the VWAP for the relevant period of the FCA common shares and the Ferrari shares were $10 and $50, respectively, the initial price, threshold appreciation price and stated amount would be multiplied by the following: