ADT 2013 Annual Report Download - page 93

FORM 10-K
Tyco shareholders on the distribution date over Tyco’s tax basis in such shares, but such gain, if recognized,
generally would not be subject to U.S. federal income tax. However, we or Tyco could incur significant U.S.
federal income tax liabilities if it ultimately is determined that certain internal transactions undertaken in
anticipation of the Distributions are taxable.
In addition, under the terms of the 2012 Tax Sharing Agreement, in the event the Distribution, the Pentair
Distribution or the internal transactions were determined to be taxable as a result of actions taken after the
Distributions by us, Pentair or Tyco, the party responsible for such failure would be responsible for all taxes
imposed on us, Pentair or Tyco as a result thereof. Taxes resulting from the determination that the Distribution,
the Pentair Distribution, or any internal transaction that was intended to be tax-free is taxable are referred to
herein as “Distribution Taxes.” If such failure is not the result of actions taken after the Distributions by us,
Pentair or Tyco, then we, Pentair and Tyco generally would be responsible for 27.5%, 20% and 52.5%,
respectively, of any taxes imposed on us, Pentair or Tyco as a result of such determination. Such tax amounts
could be significant. In the event that any party to the 2012 Tax Sharing Agreement defaults in its obligation to
pay Distribution Taxes to another party that arise as a result of no party’s fault, each non-defaulting party would
be responsible for an equal amount of the defaulting party’s obligation to make a payment to another party in
respect of such other party’s taxes. To the extent we are responsible for any liability under the 2012 Tax Sharing
Agreement, there could be a material adverse impact on our financial condition, results of operations, cash flows
or our effective tax rate in future reporting periods.
If the Distribution is determined to be taxable for Swiss withholding tax purposes, we or Tyco could incur
significant Swiss withholding tax liabilities.
Generally, Swiss withholding tax of 35% is due on dividends and similar distributions to our and Tyco’s
shareholders, regardless of the place of residency of the shareholder. As of January 1, 2011, distributions to
shareholders out of qualifying contributed surplus ( Kapitaleinlage) accumulated on or after January 1, 1997 are
exempt from Swiss withholding tax, if certain conditions are met ( Kapitaleinlageprinzip). Tyco obtained a
ruling from the Swiss Federal Tax Administration confirming that the Distribution qualifies as payment out of
such qualifying contributed surplus and, therefore, no amount was withheld by Tyco when making the
Distribution.
This tax ruling relies on certain facts and assumptions and certain representations and undertakings from
Tyco regarding the past conduct of its businesses and other matters. Notwithstanding this tax ruling, the Swiss
Federal Tax Administration could determine on audit that the Distribution should be treated as a taxable
transaction for withholding tax purposes if it determines that any of these facts, assumptions, representations or
undertakings is not correct or has been violated. If the Distribution ultimately is determined to be taxable for
withholding tax purposes, we and Tyco could incur material Swiss withholding tax liabilities that could
significantly detract from or eliminate the benefits of the Separation. In addition, we could become liable to
indemnify Tyco for part of any Swiss withholding tax liabilities to the extent provided under the 2012 Tax
Sharing Agreement.
We may be unable to achieve some or all of the benefits that we expect to achieve from our separation
from Tyco.
As an independent, publicly-traded company, we believe that our business benefits from, among other
things, allowing us to better focus our financial and operational resources on our specific business, allowing our
management to design and implement corporate strategies and policies that are based primarily on the business
characteristics and strategic decisions of our business, allowing us to more effectively respond to industry
dynamics and allowing the creation of effective incentives for our management and employees that are more
closely tied to our business performance. However, we may not be able to achieve some or all of the benefits that
we expect to achieve as an independent company in the time we expect, if at all. For example, it is possible that
investors and securities analysts will not place a greater value on our business as an independent company than
on our business as a part of Tyco.
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