(a) The amounts
include common shares owned by each of the above, directly or indirectly.
(b)
1. The MacPherson Trust (“Trust”) was created for the benefit of the family of Mr. Menachem J. Atzmon. The Trust owns Spencer
Corporation, Limited, which holds together with the Trust and its Ultimate Beneficial Owners approximately 62.6% of the issued and outstanding
Common Shares. Mr. Atzmon disclaims any beneficial interest in the MacPherson Trust. Spencer Corporation Limited and the MacPherson Trust
and its Ultimate Beneficial Owners together with Mr. Atzmon are able to appoint all the directors of ICTS and control the affairs of ICTS.
2.
As of December 31, 2021 the Company has convertible notes payable to a related party in the total amount of $1.2 million, convertible
at a rate of $0.40 per share. The calculation above does not take into consideration the conversion of convertible notes.
The
Consolidated Financial Statements and Financial Statement Schedule are included herein on pages F-1 through F-38.
Item
10.
Additional Information
Memorandum
and Articles of Association
Introduction
ICTS
is a public company with limited liability (naamloze vennootschap met beperkte aansprakelijkheid) incorporated under Dutch law on October
9, 1992. ICTS’ statutory seat is in Amstelveen, the Netherlands, and its registered office address at Schiphol, the Netherlands.
ICTS is registered with the trade register of the Dutch Chamber of Commerce under number 33279300.
As
a Dutch public company with limited liability, ICTS is subject to certain requirements not generally applicable to corporations organized
under the laws of jurisdictions within the United States of America. Set forth below is a summary of the material provisions of the articles
of association of ICTS as lastly amended on January 4, 2021 (the Articles of Association) and Dutch law, where appropriate. This
summary does not purport to be complete and is qualified in its entirety by reference to the Articles of Association. All references in
this summary to the Netherlands and Dutch law are to the European part of the Netherlands and its law, respectively, only.
Corporate
Objects
The
objectives of ICTS are described in Article 2 of the Articles of Association and include, without limitation, to manage and finance businesses,
extend loans and invest capital.
Share
Capital
The
shares of ICTS are subject to, and have been created under, the laws of the Netherlands. ICTS’ share capital is divided into
common shares (Shares).
All
Shares are in registered form (op naam) and are only available in the form of an entry in ICTS’ shareholders’ register.
Under
Dutch law, ICTS’ authorized share capital sets out the maximum amount and number of shares that it may issue without amending its
Articles of Association. The Articles of Association provide for an authorized share capital in an amount of EUR 67,500,000 divided into
150,000,000 Shares, each Share with a nominal value of EUR 0.45.
As
of December 31, 2021, 37,433,333 Shares were issued and outstanding.
Issue
of Shares and Pre-Emptive Rights
The
General Meeting is authorized to issue Shares or to grant rights to subscribe for Shares and to restrict and/or exclude statutory pre-emptive
rights in relation to the issuance of Shares or the granting of rights to subscribe for Shares. The General Meeting may designate another
body of ICTS competent to issue Shares (or grant rights to subscribe for Shares) and to determine the issue price and other conditions
of the issue for a specified period not exceeding five years (which period can be extended from time to time for further periods not exceeding
five years) so long as the maximum number of Shares which may be issued is specified. Shares may not be issued at less than their nominal
value and must be fully paid-up upon issue. A resolution by the General Meeting to issue Shares (or grant rights to subscribe for Shares)
or to designate another body as the competent corporate body requires an absolute majority of the votes cast. Such resolution was adopted
in December 2019 for a period of five years until December 2024. Designation by resolution of the General Meeting cannot be withdrawn
unless determined otherwise at the time of designation. No resolution is required for the issue of Shares pursuant to the exercise of
a previously-granted right to subscribe for Shares.
Under
Dutch law and the Articles of Association, each Shareholder has a pre-emptive right in proportion to the aggregate nominal value of their
shareholding upon the issue of Shares (or the granting of rights to subscribe for Shares). Exceptions to this pre-emptive right include
the issue of Shares (or the granting of rights to subscribe for Shares): (i) to employees of ICTS or another member of its Group; (ii)
against payment in kind (contribution other than in cash) and (iii) to persons exercising a previously-granted right to subscribe for
Shares. The pre-emptive rights in respect of newly issued Shares or the granting of rights to subscribe for Shares may be restricted or
excluded by a resolution of the General Meeting. The General Meeting may designate another corporate body as competent to resolve upon
the restriction or exclusion of the pre-emptive rights if such other corporate body has also been designated as the competent body to
resolve upon the issue of Shares for a specified period not exceeding five years (which period can be extended from time to time for further
periods not exceeding five years). A resolution of the General Meeting to exclude or restrict pre-emptive rights, or to authorize another
corporate body to exclude or restrict pre-emptive rights, requires a majority of at least two thirds of the votes cast, if less than half
of the issued share capital of ICTS is present or represented at the General Meeting. Such resolution was adopted in December 2019 for
a period of five years until December 2024. The resolution by with the pre-emptive rights are excluded or limited needs to be filed with
the Netherlands Chamber of Commerce within eight days of such resolution. A resolution designating another corporate body to resolve upon
the restriction or exclusion of the pre-emptive rights cannot be withdrawn unless provided otherwise in such resolution.
Acquisition
of Own Shares
ICTS
cannot subscribe for Shares in its own capital at the time Shares are issued. Subject to the certain provisions of the Articles of Association,
ICTS may acquire fully paid-up Shares provided no consideration is given or provided, (i) its shareholders’ equity less the payment
required to make the acquisition, does not fall below the sum of called-up and paid-in share capital and any reserves to be maintained
by Dutch law and/or the Articles of Association, (ii) ICTS and its subsidiaries would thereafter not hold Shares or hold a pledge over
Shares with an aggregate nominal value exceeding 50% of ICTS’ issued share capital and (iii) the Management Board has been authorized
thereto by the General Meeting. Any acquisition by ICTS of Shares that are not fully paid-up shall be null and void.
The
General Meeting’s authorization to the Management Board to acquire own Shares is valid for a maximum of 18 months. As part of the
authorization, the General Meeting must specify the number of Shares that may be repurchased, the manner in which the Shares may be acquired
and the price range within which the Shares may be acquired. The authorization is not required for the acquisition of Shares for employees
of the Company, under a scheme applicable to such employees. In 2020, the shareholders approved to amend the articles of association,
so that the Company will be entitle to buy back up to 20% of the issued shares.
Shares
held by the Company in its own share capital do not carry a right to any distribution. Furthermore, no voting rights may be exercised
for any of the Shares held by the Company or its subsidiaries unless such Shares are subject to the right of usufruct or to a pledge in
favour of a person other than the Company or its subsidiaries and the voting rights were vested in the pledgee or usufructuary before
the Company or its subsidiaries acquired such Shares. The Company or its subsidiaries may not exercise voting rights in respect of Shares
for which the Company or its subsidiaries have a right of usufruct or a pledge.
Reduction
of Share Capital
The
General Meeting may resolve to reduce the issued share capital by (i) cancelling Shares or (ii) amending the Articles of Association to
reduce the nominal value of the Shares of ICTS. In either case, this reduction would be subject to provisions of Dutch law and the Articles
of Association. Only Shares held by ICTS or Shares for which it holds the depositary receipts may be cancelled. Under Dutch law, a resolution
of the General Meeting to reduce the number of Shares must designate the shares to which the resolution applies and must lay down rules
for the implementation of the resolution. A resolution by the General Meeting to reduce the issued share capital of ICTS must be approved
by at least a two third majority of the votes cast, in a meeting in which holders of more than half of ICTS’ issued and outstanding
share capital is present or represented.
Dividends
Pursuant
to Dutch law and the Articles of Association, the distribution of profits will take place following the adoption of ICTS’ annual
accounts by the General Meeting, from which ICTS will determine whether such distribution is permitted. ICTS may make distributions to
the Shareholders, whether from profits or from its freely distributable reserves, only insofar as its shareholders’ equity exceeds
the sum of the paid-up and called-up share capital plus the reserves required to be maintained by Dutch law or pursuant to the Articles
of Association.
Subject
to Dutch law and the Articles of Association, the Supervisory Board may determine which part of ICTS’ profits as per its financial
statements for the relevant financial year will be added to the reserves. The remaining part of the profits will be at the disposal of
the General Meeting.
Subject
to Dutch law and the Articles of Association, the Management Board, with the prior approval of the Supervisory Board, may resolve to distribute
an interim dividend if it determines such interim dividend to be justified by ICTS’ profits. For this purpose, the Management Board
must prepare an interim statement of assets and liabilities. Such interim statement shall show the financial position of ICTS not earlier
than on the first day of the third month before the month in which the resolution to make the interim distribution is announced. An interim
dividend can only be paid if (a) an interim statement of assets and liabilities is drawn up showing that the funds available for distribution
are sufficient, and (b) ICTS’ shareholders’ equity exceeds the sum of the paid-up and called-up share capital plus the reserves
required to be maintained by Dutch law.
An
entitlement to any dividend distribution shall be barred five years after the date on which those dividends were released for payment.
General
Meeting of Shareholders
Annual
General Meeting
The
General Meeting will be held at least once a year and no later than six months from the end of the preceding financial year of ICTS. The
purpose of the annual General Meeting is to discuss, amongst other things, the annual report, the adoption of the annual accounts, allocation
of profits (including the proposal to distribute dividends), release of the Managing Directors from liability for their management and
the Supervisory Directors from liability for their supervision thereon, filling of any vacancies and other proposals brought up for discussion
by the Management Board and the Supervisory Board.
Convocation
Notice and Agenda
A
General Meeting can be convened by the Management Board or the Supervisory Board by a convening notice. Notices convening a general meeting
will be mailed to holders of registered shares at least 15 days before the General Meeting and will be published in a national newspaper
in the Netherlands and otherwise in other countries as required pursuant to the relevant laws where ICTS’ Shares have been admitted
to trading on a trading facility.
Extraordinary
General Meeting
Other
General meetings may be held as often as deemed necessary by the Management Board and Supervisory Board and must be held if one or more
Shareholders or other persons entitled to attend the general meeting jointly representing at least 10% of ICTS’ issued share capital
make a written request to the Management Board or the Supervisory Board that a meeting must be held and specifying in detail the business
to be dealt with at such meeting.
Agenda
Under
Dutch law, one or more Shareholders representing solely or jointly at least 3% of the ICTS’ issued and outstanding
share capital in value are entitled to request the Management Board to include items on the agenda of the General Meeting.
Place
General Meeting
General
Meetings are held in Amstelveen, the Netherlands (the place of the statutory seat of ICTS) or in Amsterdam, Rotterdam,
Schiphol Oost or The Hague, the Netherlands.
Admission
All shareholders of
ICTS, and each usufructuary and pledgee to whom the right to vote on Shares accrues, are entitled, in person or represented by a
proxy authorized in writing, to attend and address the General Meeting and exercise voting rights pro rata to their shareholding.
In
order to attend, address and vote at the General Meeting, the holders of ICTS’ registered shares must notify it in writing of their
intention to attend the meeting and holders of ICTS’ Shares admitted to trading on a trading facility must direct the depository
to their Shares, each as specified in the published notice. However, Shareholders and other persons entitled to attend the General Meeting
may be represented by proxies with written authority.
Voting
Rights
Each
Share confers the right on the holder to cast one vote at the General Meeting. Resolutions are passed by an absolute majority of the votes
cast provided a quorum of at least 50% of the outstanding share capital is represented, unless Dutch law or the Articles of Association
prescribe a larger majority. Under Dutch law, no votes may be cast at a General Meeting in respect of Shares which are held by ICTS itself.
Management
Structure
ICTS
has a two-tier board structure comprising of the Management Board (bestuur) and the Supervisory Board (raad van commissarissen).
The
Management Board is collectively responsible for ICTS’ general affairs and is in charge of the day-to-day management, formulating
strategies and policies, and setting and achieving ICTS’ objectives. The Supervisory Board supervises the Management Board and the
general affairs of ICTS and the business connected with it and provides the Management Board with advice.
Management
Board
Powers,
Responsibilities and Function
The
Management Board is the executive body of ICTS, collectively responsible for, among other things, defining and attaining ICTS’ objectives,
determining ICTS’ strategy and risk management policy, the day-to-day management, the ICTS’ general affairs and ICTS’
representation, subject to the supervision of the Supervisory Board. The Management Board may perform all acts necessary or useful for
achieving ICTS’ objectives, with the exception of those acts that are prohibited by law or by the Articles of Association. The Management
Board may allocate its responsibilities and powers to its individual members. All Managing Directors remain collectively responsible for
proper management regardless of the allocation of tasks. In performing their duties, the Managing Directors must carefully consider and
shall act in accordance with the interests of ICTS and the business connected with it, taking into consideration the interests of all
corporate stakeholders, such as Shareholders, creditors, employees, customers, patient populations and suppliers.
Subject
to certain statutory exceptions, the Management Board as a whole is authorized to represent ICTS. In addition, should the Management Board
be comprised of two or more members, two Managing Directors acting jointly are also authorized to represent ICTS.
Composition,
Appointment, Term of Appointment and Dismissal
The
Articles of Association provide that the Management Board shall consist of one or more members and that the General Meeting determines
the exact number of Managing Directors.
The
General Meeting appoints the Managing Directors. Managing Directors are appointed by the General meeting for an indefinite
period.
The
General Meeting and the Supervisory Board may suspend Managing Directors at any time, and the General Meeting may remove Managing Directors
at any time. A General Meeting must be held within three months after a suspension of a Managing Director has taken effect, in which meeting
a resolution must be adopted to either terminate or extend the suspension, provided that in the case that such suspension is not terminated,
the suspension does not last longer than three months in aggregate. The suspended Managing Director must be given the opportunity to account
for his or her actions at that meeting. If neither such resolution is adopted nor the General Meeting has resolved to dismiss the Managing
Director, the suspension will cease after the period of suspension has expired.
Decision-Making
In
a meeting of the Management Board, each Managing Director is entitled to cast one vote. All resolutions by the Management Board are adopted
by the favorable vote of a majority of the Managing Directors present or represented at the meeting (and in respect of whom no conflict
of interest exists).
The
Supervisory Board may also adopt resolutions outside a meeting, in writing or otherwise, provided that the proposal concerned is submitted
to all Managing Directors then in office (and in respect of whom no conflict of interest exists) and provided that none of them objects
to such decision-making process. Resolutions in writing shall be adopted by written statements from all relevant Managing Directors then
in office in respect of whom no conflict of interest exists.
Conflicts
of Interests
A
Managing Director shall not participate in any discussions and decision-making process if he or she has a direct or indirect personal
interest conflicting with the interests of the Company. Such a conflict of interest only exists if in the situation at hand the Managing
Director is deemed to be unable to serve the Company’s interest and its connected business with the required level of integrity
and objectivity. If for this reason no resolution can be taken by the Managing Directors, the Supervisory Board will resolve on the matter.
Supervisory
Board
Powers,
Responsibilities and Function
The
role of the Supervisory Board is to supervise the conduct and policies of the Management Board and the general affairs of ICTS and the
business connected with it as well as to provide the Management Board with advice. The Supervisory Directors are not authorized to represent
ICTS. In performing their duties, the Supervisory Directors are required to be guided by the interests of ICTS and the business connected
with it, and shall consider the interests of the ICTS’ stakeholders, which include but are not limited to its shareholders, creditors,
employees, customers and suppliers. The Supervisory Board may, at ICTS’ expense, seek the advice which it deems desirable for the
correct performance of its duties.
Composition,
Appointment, Term of Appointment and Dismissal
The
Articles of Association provide that the Supervisory Board shall consist of one or more members and that the General Meeting determines
the exact number of Supervisory Directors.
The
members of the Supervisory Board are appointed by the General Meeting for a term of one year.
The
General Meeting may suspend and remove Supervisory Directors at any time. A General Meeting must be held within three months after a suspension
of a Supervisory Director has taken effect, in which meeting a resolution must be adopted to either terminate or extend the suspension,
provided that in the case that such suspension is not terminated, the suspension does not last longer than three months in aggregate.
The suspended Supervisory Director must be given the opportunity to account for his or her actions at that meeting. If neither such resolution
is adopted nor the General Meeting has resolved to dismiss the Supervisory Director, the suspension will cease after the period of suspension
has expired.
Decision-Making
In
a meeting of the Supervisory Board, each Supervisory Director is entitled to cast one vote. A Supervisory Director may grant a written
proxy to another Supervisory Director (if in office) to represent him at a meeting. All resolutions by the Supervisory Board are adopted
by the favorable vote of a majority of the Supervisory Directors present or represented at the meeting (and in respect of whom no conflict
of interest exists).
The
Supervisory Board may also adopt resolutions outside a meeting, in writing or otherwise, provided that the proposal concerned is submitted
to all Supervisory Directors then in office (and in respect of whom no conflict of interest exists) and provided that none of them objects
to such decision-making process. Adoption of resolutions in writing shall be adopted by written statements from all relevant Supervisory
Directors then in office in respect of whom no conflict of interest exists.
Conflicts
of Interests
A
Supervisory Director shall not participate in any discussions and decision-making process if he or she has a direct or indirect personal
interest conflicting with the interests of the Company. Such a conflict of interest only exists if in the situation at hand the Supervisory
Director is deemed to be unable to serve the Company’s interest and its connected business with the required level of integrity
and objectivity. If for this reason no resolution can be taken by the Supervisory Directors, the General Meeting will resolve on the matter.
Financial
Year and Annual Accounts
The
financial year of ICTS coincides with the calendar year. Annually within five months after the end of the financial year, the Management
Board prepares the annual accounts. The annual accounts must be accompanied by the Report of Independent Registered Public Accounting
Firm, an annual report, a report by the Management Board and a report by the Supervisory Board and certain other information required
under Dutch law. All Managing Directors and Supervisory Board sign the annual accounts and if one of them does not so sign, the reason
for this omission must be stated. The Management Board must make the annual accounts, the annual report and other information required
under Dutch law available for inspection by the Shareholders and other persons entitled to attend and address the General Meeting at the
offices of ICTS from the day of the notice convening the annual General Meeting. The annual accounts must be adopted by the General Meeting
at the annual General Meeting.
Contrary
to what is provided in Article 19 paragraph 4 of the Articles of Association, approval of the annual accounts by the Shareholders does
not discharge the Managing Directors and the Supervisory Board from liability for the performance of their respective duties for the past
financial year. In order to discharge the Managing Directors and Supervisory Board from liability a separate resolution thereto needs
to be adopted by the General Meeting (which resolution can be adopted in the same meeting in which the annual accounts will be adopted).
Under Dutch law, this discharge is not absolute and will not be effective with respect to matters which are not disclosed to the Shareholders.
Amendment
of Articles of Association
Only
the General Meeting may resolve to amend the Articles of Association. A proposal to amend the Articles of Association must be included
in the notice convening the General Meeting. A copy of the proposal containing the verbatim text of the proposed amendment must be available
at ICTS for inspection by every shareholder of ICTS and every holder of meeting right until the end of the General Meeting.
A
resolution by the General Meeting to amend the Articles of Association must be approved by at least a two third majority of the votes
cast, in a meeting in which holders of more than half of ICTS’ issued and outstanding share capital is present or represented.
Dissolution
and Liquidation
A
proposal to dissolve ICTS must be included in the notice convening the General Meeting. A resolution by the General Meeting to dissolve
ICTS must be approved by at least a two third majority of the votes cast, in a meeting in which holders of more than half of ICTS’
issued and outstanding share capital is present or represented.
If
the General Meeting has resolved to dissolve ICTS, the Managing Directors will be charged with the liquidation of the business of ICTS
in accordance with Dutch law and the Articles of Association under supervision of the Supervisory Board. During liquidation, the provisions
of the Articles of Association will remain in force as far as possible.
Any
surplus remaining after settlement of all debts and liquidation costs will be distributed to the Shareholders in proportion to the nominal
value of their shareholdings.
Material
contracts
For
material contracts See “Item 8 - Financial Information”.
Exchange
controls
There
are no governmental laws, decrees or regulations in The Netherlands, ICTS’ jurisdiction of organization, that restrict ICTS’
export or import of capital in any material respect, including, but not limited to, foreign exchange controls.
There
are no limitations imposed by Dutch law or ICTS’ charter documents on the right of non-resident or foreign owners to hold or vote
Shares.
Taxation
The
following discussion summarizes the material anticipated U.S. federal income tax consequences of the acquisition, ownership and disposition
of shares by a U.S. Holder (as defined below). This summary deals only with shares held as capital assets and does not deal with the tax
consequences applicable to all categories of investors some of which (such as tax-exempt entities, banks, broker-dealers, investors who
hold shares as part of hedging or conversion transactions and investors whose functional currency is not the U.S. dollar) may be subject
to special rules.
The
summary does not purport to be a complete analysis or listing of all the potential tax consequences of holding shares, nor does it purport
to furnish information in the same detail or with the attention to an investor's specific tax circumstances that would be provided by
an investor's own tax adviser. Accordingly, U.S. holders of shares are advised to consult their own tax advisers with respect to their
particular circumstances and with respect to the effects of U.S. federal, state, local, or other laws to which they may be subject.
As
used herein, the term "U.S. Holder" means a beneficial owner of shares that is (i) for United States federal income tax purposes a citizen
or resident of the United States of America, (ii) a corporation or other entity created or organized in or under the laws of the United
States or any political subdivision thereof, (iii) a trust if a court within the United States of America is able to exercise primary
supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions
of the trust, or (iv) an estate, the income of which is subject to United States federal income taxation regardless of its source.
The
summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), judicial decisions, administrative pronouncements, and
existing and proposed Treasury Department regulations, changes to any of which after the date of this Annual Report on Form 20-F could
apply on a retroactive basis and affect the tax consequences described herein.
Taxation
of Dividends
For
U.S. federal income tax purposes, the gross amount of distributions, if any, (including any withholding tax thereon) made by the Company
out of its current or accumulated earnings and profits (as determined under U.S. federal income tax principles) will be included in the
gross income of a direct U.S. Holder as foreign source dividend income on the date of receipt but in the case of a U.S. Holder that is
a corporation, generally will not be eligible for a dividends received deduction if the Company constitutes a so-called “specified
10%-owned foreign corporation” with respect to such a U.S. Holder.
Subject
to the discussion below regarding passive foreign investment companies, the Company should be considered to be a “qualified foreign
corporation” so that such dividends should be eligible to be taxed as net capital gains (at a maximum U.S. federal rate of 20 percent
in the hands of a non-corporate U.S. Holder) plus potentially a net investment income tax (for non-corporate U.S. Holders) at a maximum
rate of 3.8%.
Distributions
in excess of the earnings and profits of the Company will be treated, for U.S. federal income tax purposes, first as non-taxable to the
extent of the U.S. Holder's basis in the shares (thereby increasing the amount of any gain and decreasing the amount of any loss realized
on the subsequent disposition of such shares) and then as a gain from the sale or exchange of the shares. The amount of any dividend paid
in Euros generally will be determined based on the U.S. dollar value of the Euro on the date of receipt regardless of whether the U.S.
Holder converts the payment into U.S. dollars.
The
declaration of dividends will be at the discretion of the Company’s Supervisory Board of directors and will depend upon the Company’s
earnings, capital requirements, financial position, general economic conditions, and other pertinent factors. The Company cannot assure
Holders that dividends will be paid in the future.
Foreign
Tax Credits
U.S.
Holders will generally be entitled to claim a credit against their United States federal income tax liability for the amount of Netherlands
dividend withholding tax imposed on dividends paid to U.S. Holders.
See
Netherlands Dividend Withholding Tax. U.S. Holders who are entitled to the benefits of a reduced rate of Netherlands dividend withholding
tax under the tax treaty between the United States of America and the Netherlands will be allowed a credit for only the amount of withholding
tax provided for under the U.S. Tax Treaty (generally 15%).
However,
the full amount of the dividend, including any withheld amounts, generally will be subject to current United States federal income taxation
whether or not such Holder the benefit of a credit for the amount withheld. In the event the Company pays a dividend to a U.S. Holder
out of the earnings of a non-Dutch subsidiary, however, it is possible that under certain circumstances that such U.S. Holder would not
be entitled to claim a credit for a portion of any Dutch taxes withheld by the Company from such dividend. Based on historic economics,
the portion of Dutch withholding tax that may not be creditable in this instance should equal a maximum of 3% of the gross amount of such
dividend (or 20% of the Dutch taxes withheld in the case of a U.S. Holder entitled to claim a 15% withholding rate under the U.S. Tax
Treaty). This limitation would potentially apply only under circumstances where the Company pays dividends on the shares.
Depending
on the particular circumstances of the U.S. Holder, dividends accrued from shares will generally be classified, for foreign tax credit
purposes, as passive income. A U.S. Holder who finds it more advantageous because of such limitations to claim the Netherlands dividend
withholding tax as a deduction instead of a credit may do so, but only for a year for which such Holder does not claim a credit for any
foreign taxes. If the U.S. Holder is a U.S. partnership, trust, or estate, any tax credit is available only to the extent that the income
derived by such partnership, trust, or estate is subject to U.S. tax on the income of a resident either in its hands or in the hands of
its partners or beneficiaries, as the case may be.
Taxation
on Sale or Disposition of Shares
Subject
to the discussion below regarding passive foreign investment companies, U.S. Holders will recognize capital gain or loss for U.S. federal
income tax purposes on the sale or other disposition of shares in an amount equal to the difference between the U.S. dollar value of the
amount realized and the U.S. Holder's adjusted tax basis in the shares. In general, a U.S. Holder's adjusted tax basis in the shares will
be equal to the amount paid by the U.S. Holder for such shares reduced by any distribution in excess of the earnings and profits of the
Company.
For
shares held for one year or less, any such gain or loss will generally be treated as short-term gain or loss. Short-term capital gains
are taxed at the same rate as ordinary income.
If
the shares have been held for more than a year, any such gain or loss will generally be treated as long-term capital gain or loss. U.S.
Holders are advised to consult a competent tax adviser regarding applicable capital gains tax provisions and sourcing of capital gains
and losses for foreign tax credit purposes.
Gift
and Estate Tax
An
individual U.S. Holder may be subject to U.S. gift and estate taxes on shares in the same manner and to the same extent as on other types
of personal property.
Backup
Withholding and Information Reporting
Payments
in respect of the shares may be subject to information reporting to the IRS and to a 24% U.S. backup withholding tax. Backup withholding
generally will not apply, however, to a Holder who furnishes a correct U.S. taxpayer identification number or certificate of foreign status
and makes any other required certification or who is otherwise exempt from backup withholding. Generally, a U.S. Holder will provide such
certification on Form W-9 (Request for Taxpayer Identification Number and Certification) and a non-US Holder will provide such certification
on a version of Form W-8 (Certificate of Foreign Status).
Passive
Foreign Investment Company
Management
has determined that the Company has not been a passive foreign investment company (“PFIC”) for United States federal income
tax purposes for prior taxable years and believes that the Company will not be treated as a PFIC for the current and future taxable years,
but this conclusion is a factual determination made annually and thus subject to change. The Company would be a PFIC with respect to a
U.S. Holder if, for any taxable year in which such U.S. Holder held shares, either (i) at least 75% of the Company’s gross income
for the taxable year is passive income, or (ii) at least 50% of the Company’s assets are assets that produce or are held for the
production of passive income. Under a “look-through” rule, a corporation takes into account a pro rata share of the income
and the assets of any corporation in which it owns, directly or indirectly, 25% or more of the stock by value.
Passive
income generally includes dividends, interest, royalties, rents (other than rents and royalties derived from the active conduct of a trade
or business and not derived from a related person), annuities, and gains from assets that produce passive income. The 50% asset test would
apply to the Company based on fair market values.
If
the Company is a PFIC for any taxable year during which a U.S. Holder holds shares, the U.S. Holder will be subject to special tax
rules with respect to any “excess distribution” that the U.S. Holder receives on shares, and any gain the U.S. Holder realizes
from a sale or other disposition (including a pledge) of the shares unless the U.S. Holder makes a “qualified electing fund”
or “mark-to-market” election as discussed below.
Distributions
the U.S. Holder receives in a taxable year that are greater than 125% of the average annual distributions the U.S. Holder received during
the shorter of the three preceding taxable years or the U.S. Holder’s holding period for the shares will be treated as an excess
distribution. Under these special tax rules:
|
• |
The excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period
for the shares, |
|
• |
The amount allocated to the current taxable year, and any taxable year prior to the first taxable year
in which the Company was a PFIC, will be treated as ordinary income, and |
|
• |
The amount allocated to each other year will be subject to tax at the highest tax rate in effect for
that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each
such year. |
The
tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by
any net operating losses, and gains (but not losses) realized on the sale of the shares cannot be treated as capital, even if the U.S.
Holder holds the shares as capital assets.
If
the Company were to become a PFIC, a U.S. Holder may avoid taxation under the excess distribution rules discussed above by making a “qualified
electing fund” election to include the U.S. Holder’s share of the Company’s income on a current basis. However, a U.S.
Holder may make a qualified electing fund election only if the Company, as a PFIC, agrees to furnishes the shareholder annually with certain
tax information. Management has not decided whether, under such circumstances, the Company would prepare or provide such information.
Alternatively, if the Company were to become a PFIC, a U.S. Holder might, depending on the volume of trading of our stock, make a mark-to-market
election to elect out of the excess distribution rules discussed above.
If
a U.S. Holder made a mark-to-market election for the shares, the U.S. Holder would include in income each year an amount equal to the
excess, if any, of the fair market value of the shares as of the close of the U.S. Holder’s taxable year over the U.S. Holder’s
adjusted basis in such shares. A U.S. Holder is allowed a deduction for the excess, if any, of the adjusted basis of the shares over their
fair market value as of the close of the taxable year only to the extent of any net mark-to-market gains on the shares included in the
U.S. Holder’s income for prior taxable years. Amounts included in a U.S. Holder’s income under a mark-to-market election,
as well as gain on the actual sale or other dispositions of the shares are treated as ordinary income. Ordinary loss treatment also applies
to the deductible portion of any mark-to-market loss on the shares, as well as to any loss realized on the actual sale or disposition
of the shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such shares.
A U.S. Holder’s basis in the shares will be adjusted to reflect any such income or loss amounts.
The
mark-to-market election is available only for stock which is regularly traded on a national securities exchange that is registered with
the Securities and Exchange Commission, or the national market system established pursuant to section 11A of the Exchange Act, or any
exchange or market that the IRS has determined has rules sufficient to carry out the purposes of the income tax rules. There can be no
assurance that the Company will continue to satisfy the requirements of the mark-to-market election.
Taxes
in the Netherlands
Corporate
Income Tax – General
We
are incorporated under the laws of the Netherlands and are therefore subject to Netherlands corporate income tax. As of 2020, the
standard corporate income tax rate is 15% on profits up to €0.245 million and 25% on the excess. In 2021, the statutory corporate
income tax rates will be lowered further to 15% and 25%, respectively. In 2022 the statutory corporate income tax rates will be 15% on
profits up to €0.4 million and 25%, on the excess.
ICTS
and a number of our Netherlands resident subsidiaries form a fiscal unity for Netherlands corporate income tax purposes. As a result,
corporate income tax is levied from these entities on a consolidated basis at the level of ICTS.
For
Netherlands corporate income tax purposes, affiliated entities should calculate their profits on an “at arm’s length”
basis. In case transactions between such affiliated entities are made or imposed on conditions (transfer prices) which differ from those
conditions which would have been made or imposed between independent entities in the free market, the profits of those entities are determined
as if the “at arm’s length” conditions had been agreed.
Participation
Exemption
Pursuant
to the Netherlands participation exemption, income and capital gains derived from the investment by a parent company in a qualifying subsidiary
are exempt from corporate income tax provided that the parent company meets the 5 per cent threshold test, and the participation is not
considered to be a portfolio investment. The 5 per cent threshold test requires that the parent company (i) owns at least 5 per cent of
the nominal share capital in the subsidiary, or (ii) is shareholder in and related to the subsidiary, whilst an entity related to the
parent owns at least 5 per cent of the nominal share capital in the subsidiary, or (iii) has owned for an uninterrupted period of at least
one year at least 5 per cent of the nominal share capital in subsidiary and three years have not yet passed after the shareholding by
the parent in the subsidiary dropped below 5 per cent.
If
the parent company holds its participation in the subsidiary as a portfolio investment, the participation exemption is not applicable,
unless it qualifies as a “qualifying portfolio investment”. A portfolio investment is a shareholding in a subsidiary that
is held by the parent with the intent of realizing a return on investment that can be expected from normal, active asset management
activities. This is a subjective facts and circumstances test. The specific purpose for making the investment in the subsidiary must be
analyzed on a case-by-case basis taking into account all of the relevant facts and circumstances.
A
parent company would generally not be considered to hold the participation in the subsidiary company as a portfolio investment, if the
business carried on by the subsidiary company is in line with the business carried on by the parent company. This should normally also
apply to a holding company, which, based on its activities on a managerial, policy-making or financial level, performs a material function
for the benefit of the group of companies that it forms part of, or to an intermediate holding company in case this company plays a linking
role between the business activities of its parent company and the business activities of its subsidiary companies.
The
subsidiary would be deemed to be held as a portfolio investment by the parent company if (i) the assets of the subsidiary usually
consist, on a consolidated basis, for more than 50 per cent of shareholdings (and similar rights) of less than 5 per cent in other entities
or (ii) the subsidiary company’s activities consist for more than 50% of group financing activities. Group financing includes loans,
credit instruments and also leasing of equipment, intangibles and other assets.
If
the parent company would (be deemed to) hold the participation in the subsidiary as a portfolio investment, such portfolio investment
may still qualify for the application of the participation exemption if (i) the subsidiary is subject to an income/profits tax resulting
in an effective tax burden that is realistic under Netherlands principles, or (ii) the assets of the subsidiary, directly or indirectly,
usually consist for less than 50 per cent of low-taxed free investments.
Apart
from special provisions in relation to certain liquidation losses, capital losses incurred in relation to qualifying participations are
not deductible for Netherlands corporate income tax purposes
Costs
related to the acquisition of qualifying participations are generally not deductible. Costs related to the disposal of qualifying participations
are also generally not deductible. Other expenses relating to participations (e.g. the cost of financing) are in principle deductible,
subject to possible interest deduction limitations.
The
participation exemption does not apply to accrued payments (of dividend, interest, or other) that are tax-deductible in the country of
the debtor, whereas the corresponding income is exempt under the scope of the participation exemption. This will be the case e.g. if the
country of the debtor qualifies the distribution as an interest expense, whereas the Netherlands qualifies the income as a dividend.
In
case the participation exemption is applicable, income in the hands of ICTS arising from dividends paid by subsidiaries or capital gains
from the disposal of its shares in such subsidiaries are exempt from corporate income tax in the Netherlands.
If
the participation exemption is not applicable, income derived by ICTS from a subsidiary will be taxed at the statutory corporate income
tax rates.
Controlled
Foreign Company Regulations
As
per 1 January 2019, the Netherlands has implemented the Controlled Foreign Company (“CFC”) regulations provided for in the
EU Anti-Tax Avoidance Directive (“ATAD”) into domestic law. Based on these regulations, subject to conditions, certain
types of passive income generated by qualifying CFC’s that are resident in low-tax jurisdictions (i.e., countries with a statutory
profit tax rate lower than 9%) or jurisdictions that are included on the EU list of non-cooperative jurisdictions, are taxable at the
level of the parent company against the regular Dutch corporate income tax rates mentioned above.
Interest
Deduction Limitations
As
of 1 January 2019, the Netherlands has implemented the generic interest stripping rule provided for in the EU Anti-Tax Avoidance Directive
(“ATAD”) into domestic law. The earnings stripping rule limits the possibility to deduct “excess” interest costs
(i.e. the balance of interest costs and interest income) to 30% of a taxpayer’s EBITDA. As of January 1, 2022, the before mentioned
percentage has been reduced from 30% to 20%. The earnings stripping rule provides for a €1.0 million threshold, which means that
the deduction of excess interest costs up to €1.0 million will not be restricted.
Besides
the earnings stripping rule, Netherlands tax law includes other anti-abuse provisions in relation to the deductibility of interest. In
addition, interest deductions may be disallowed based on the abuse of law doctrine (“fraud legis”).
Loss
Compensation
According
to Netherlands tax law, losses incurred may be carried back for one year. As of 1 January 2019, the possibility to carry forward losses
was limited from nine years to six years. As from 1 January 2022, losses can be carried forward indefinitely. The yearly utilization of
carry forward losses will be limited to €1.0 million, plus 50% of taxable income above €1.0 million. The new rules are also
applicable to already existing carry forward losses as per 1 January 2022 (i.e., carry forward losses from 2013 and subsequent years).
Depreciation
Limitations
For
Netherlands corporate income tax purposes, restrictions apply to the depreciation of goodwill, real estate and other business assets.
The maximum yearly depreciation charge for acquired goodwill is 10% of its cost price. Depreciation of real estate property is not allowed
in case the book value of the property falls below 100% of the value used for purposes of the Valuation of Immovable Property Act (“WOZ
value”). The maximum yearly depreciation charge for other business assets is 20% of the cost price of such assets. In certain situations,
it should still, however, be possible to value assets at lower going-concern value.
Netherlands
Tax Considerations of Holding Shares
The
following summary outlines certain Netherlands tax consequences in connection with the acquisition, ownership and disposal of Shares. All
references in this summary to the Netherlands and Dutch law are to the European part of the Netherlands and its law, respectively, only.
The summary does not purport to present any comprehensive or complete picture of all Netherlands tax aspects that could be of relevance
to the acquisition, ownership and disposal of Shares by a (prospective) holder of Shares who may be subject to special tax treatment under
applicable law. The summary is based on the tax laws and practice of the Netherlands as in effect on the date of this Prospectus,
which are subject to changes that could prospectively or retrospectively affect the Netherlands tax consequences.
For
purposes of Netherlands income and corporate income tax, Shares legally owned by a third party such as a trustee, foundation or similar
entity or arrangement (a Third Party), may under certain circumstances have to be allocated to the (deemed) settlor, grantor or similar
originator (the Settlor) or, upon the death of the Settlor, his/her beneficiaries (the Beneficiaries) in proportion to their
entitlement to the estate of the Settlor of such trust or similar arrangement (the Separated Private Assets).
The
summary does not address the tax consequences of a holder of Shares who is an individual and who has a substantial interest in ICTS. Generally,
a holder of Shares will have a substantial interest in ICTS if such holder of Shares, whether alone or together with his spouse or partner
and/or certain other close relatives, holds directly or indirectly, or as Settlor or Beneficiary of Separated Private Assets (i) the ownership
of, or certain other rights, such as usufruct, over, or rights to acquire (whether or not already issued), shares representing 5% or more
of the total issued and outstanding capital (or the issued and outstanding capital of any class of shares) of ICTS or (ii) the ownership
of, or certain other rights, such as usufruct over, profit participating certificates (winstbewijzen) that relate to 5% or more of the
annual profit of ICTS or to 5% or more of the liquidation proceeds of ICTS.
In
addition, a holder of Shares has a substantial interest in ICTS if he, whether alone or together with his spouse or partner and/or certain
other close relatives, has the ownership of, or other rights over, shares in, or profit certificates issued by, ICTS that represent less
than 5% of the relevant aggregate that either (a) qualified as part of a substantial interest as set forth above and where shares, profit
certificates and/or rights there over have been, or are deemed to have been, partially disposed of, or (b) have been acquired as part
of a transaction that qualified for non-recognition of gain treatment.
This
summary does not address the tax consequences of a holder of Shares who:
(a) receives
income or realizes capital gains in connection with his or her employment activities or in his/her capacity as (former) Management Board
member and/or (former) Supervisory Board member; or
(b) is
a resident of any non-European part of the Netherlands; or
(c)
for whom the Shares form part of a “lucrative interest” (see further below).
Prospective
holders of Shares should consult their own professional adviser with respect to the tax consequences of any acquisition, ownership or
disposal of Shares in their individual circumstances.
Dividend
Withholding Tax
General
ICTS
is generally required to withhold dividend withholding tax imposed by the Netherlands at a rate of 15% on dividends distributed by ICTS
in respect of Shares. The expression “dividends distributed by ICTS” as used herein includes, but is not limited to:
(a)
distributions in cash or in kind, deemed and constructive distributions and repayments of paid-in capital (“gestort kapitaal”)
not recognized for Netherlands dividend withholding tax purposes;
(b)
liquidation proceeds, proceeds of redemption of Shares or, as a rule, consideration for the repurchase of Shares by ICTS in excess of
the average paid-in capital recognized for Netherlands dividend withholding tax purposes;
(c)
the par value of Shares issued to a holder of Shares or an increase of the par value of Shares, to the extent that it does not appear
that a contribution, recognized for Netherlands dividend withholding tax purposes, has been made or will be made; and
(d)
partial repayment of paid-in capital, recognized for Netherlands dividend withholding tax purposes, if and to the extent that there are
net profits (zuivere winst), unless (i) the General Meeting has resolved in advance to make such repayment and (ii) the par value of the
Shares concerned has been reduced by an equal amount by way of an amendment of the Articles of Association of ICTS.
Holders
of Shares Resident in the Netherlands
A
holder of Shares that is resident or deemed to be resident in the Netherlands is generally entitled, subject to the anti-dividend stripping
rules described below, to a full credit against its (corporate) income tax liability, or a full refund, of the Netherlands dividend withholding
tax. As from 1 January 2022, corporate taxpayers can only claim a credit for Netherlands dividend withholding tax for at maximum the amount
of their corporate income tax liability in any given year. Non-credited dividend withholding tax can be carried forward indefinitely and
be credited against the taxpayer’s tax liability in future years.
Holders
of Shares Resident Outside the Netherlands
A
holder of Shares that is resident in a country with which the Netherlands has a double taxation convention in effect, may, depending on
the terms of such double taxation convention and subject to the anti-dividend stripping rules described below, be eligible for a full
or partial exemption from, or full or partial refund of, Netherlands dividend withholding tax on dividends received.
A
holder of Shares that is a legal entity (a) resident in (i) a Member State of the European Union, (ii) Iceland, Norway or Liechtenstein,
or (iii) a country with which the Netherlands has concluded a tax treaty that includes an article on dividends and (b) that is in its
state of residence under the terms of a double taxation agreement concluded with a third state, not considered to be resident for tax
purposes in a country with which the Netherlands has not concluded a tax treaty that includes an article on dividends (not being a Member
State of the European Union, Iceland, Norway or Liechtenstein), is generally entitled, subject to the anti-abuse rules and the anti-dividend
stripping rules described below, to a full exemption from Netherlands dividend withholding tax on dividends received if it holds an interest
of at least 5% (in shares or, in certain cases, in voting rights) in ICTS or if it holds an interest of less than 5%, in either case where,
had the holder of Shares been a Netherlands resident, it would have had the benefit of the participation exemption (this may include a
situation where another related party holds an interest of 5% or more in the company).
The
full exemption from Netherlands dividend withholding tax on dividends received by a holder of Shares that is a legal entity (a) resident
in (i) a Member State of the European Union, (ii) Iceland, Norway or Liechtenstein, or (iii) a country with which the Netherlands has
concluded a tax treaty that includes an article on dividends is not granted if the interest held by such holder (i) is held with the avoidance
of Netherlands dividend withholding tax of another person as (one of) the main purpose(s) and (ii) forms part of an artificial structure
or series of structures (such as structures which are not put into place for valid business reasons reflecting economic reality).
A
holder of Shares that is an entity resident in (i) a Member State of the European Union, or (ii) Iceland, Norway or Liechtenstein, or
(iii) in a jurisdiction which has an arrangement for the exchange of tax information with the Netherlands (and such holder as described
under (iii) holds the Shares as a portfolio investment, i.e., such holding is not acquired with a view to the establishment or maintenance
of lasting and direct economic links between the holder of Shares and ICTS and does not allow the holder of Shares to participate effectively
in the management or control of ICTS), which is exempt from tax in its country of residence and does not have a similar function to a
qualifying investment institution (fiscale beleggingsinstelling) or a qualifying exempt investment institution (vrijgestelde beleggingsinstelling),
and that would have been exempt from Netherlands corporate income tax if it had been a resident of the Netherlands, is generally entitled,
subject to the anti-dividend stripping rules described below, to a full refund of Netherlands dividend withholding tax on dividends received.
This full refund will in general benefit certain foreign pension funds, government agencies and certain government controlled commercial
entities.
According
to the anti-dividend stripping rules, no exemption, reduction, credit or refund of Netherlands dividend withholding tax will be granted
if the recipient of the dividend paid by the company is not considered the beneficial owner (uiteindelijk gerechtigde) of the dividend
as defined in these rules. A recipient of a dividend is not considered the beneficial owner of the dividend if, as a consequence of a
combination of transactions, (i) a person (other than the holder of the dividend coupon), directly or indirectly, partly or wholly benefits
from the dividend, (ii) such person directly or indirectly retains or acquires a comparable interest in Shares, and (iii) such person
is entitled to a less favorable exemption, refund or credit of dividend withholding tax than the recipient of the dividend distribution.
The term “combination of transactions” includes transactions that have been entered into in the anonymity of a regulated stock
market, the sole acquisition of one or more dividend coupons and the establishment of short-term rights or enjoyment on Shares (e.g.,
usufruct).
As
from 2024, the new Conditional Withholding Tax Rule (CWTR) will enter into force. Based on the CWTR, a withholding tax will be levied
on (i) dividend payments to corporate shareholders resident in low-tax jurisdictions (i.e., countries with a statutory profit tax rate
lower than 9%), (ii) dividend payments to jurisdictions that are included on the EU list of non-cooperative jurisdictions and (iii) dividend
payments to hybrid entities and artificial structures intended to avoid Dutch withholding tax on dividends (i.e. abuse situations). The
rate of the CWHT on dividends is linked to the highest rate of the Dutch corporate income tax (currently being 25.8%). The proposed CWHT
on dividend payments will be a new tax that will exist next to the regular Dividend Withholding Tax (rate: 15%). As a result, these taxes
may apply simultaneously on the same dividend payment under certain circumstances. For these situations, the new CWHT rule provides for
an anti-accumulation scheme that could be applied so that effectively a maximum rate of 25.8% is applied
Holders
of Shares Resident in the U.S.
Dividends
paid to U.S. resident holders of Shares that are eligible for benefits under the Convention between the Netherlands and the United States
of America for the avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes and Income, dated 18 December
1992 as amended by the protocol of 8 March 2004 (the U.S. Tax Treaty) are generally subject to a reduced dividend withholding tax rate
of 5% in case of certain U.S. corporate shareholders owning at least 10% of ICTS’ total voting power. Certain U.S. pension funds
and tax-exempt organizations may qualify for a complete exemption from Netherlands dividend withholding tax.
Under
the U.S. Tax Treaty such benefits are generally available to U.S. residents if such resident is the beneficial owner of the dividends,
provided that such shareholder does not have an enterprise or an interest in an enterprise that is, in whole or in part, carried on through
a permanent establishment or permanent representative in the Netherlands and to which enterprise or part of an enterprise Shares are attributable.
A person may, however, not claim the benefits of the U.S. Tax Treaty if such person’s entitlement to such benefits is limited by
the provisions of Article 26 (the limitation on benefits provision) of the U.S. Tax Treaty. The reduced dividend withholding tax rate
can generally be applied at source upon the distribution of the dividends, provided that the proper forms have been filed in advance of
the distribution. In the case of certain tax-exempt organizations, as a general rule, the so-called refund method applies; only when certain
administrative conditions have been fulfilled may such tax-exempt organization use the exemption method.
Irrespective
of meeting the conditions of the relevant provisions of U.S. Tax Treaty, dividends distributed by the company to a U.S. resident holder
(i) who is a legal entity resident in the U.S. and (ii) that is in the U.S. under the terms of a double taxation agreement with a third
state not considered to be resident for tax purposes in a country with which the Netherlands has not concluded a tax treaty that includes
an article on dividends (not being a Member State of the European Union, Iceland, Norway or Liechtenstein), are generally, subject to
the anti-abuse rules and the anti-dividend stripping rules described above, fully exempt from Netherlands dividend withholding tax if
the U.S. resident holder of Shares holds an interest of at least 5% (in shares or, in certain cases, in voting rights) in ICTS or if it
holds an interest of less than 5%, in either case where, had the holder of Shares been a Netherlands resident, it would have had the benefit
of the participation exemption (this may include a situation where another related party holds an interest of 5% or more in ICTS).
Taxes
on Income and Capital Gains
Holders
of Shares Resident in the Netherlands: Individuals
A
holder of Shares who is an individual resident or deemed to be resident in the Netherlands will be subject to regular Netherlands income
tax on the income derived from Shares and the gains realized upon the acquisition, redemption and/or disposal of Shares by the holder
thereof, if:
(a)
such holder of Shares has an enterprise or an interest in an enterprise, to which enterprise Shares are attributable; and / or
(b)
such income or capital gain forms “a benefit from miscellaneous activities” (“resultaat uit overige werkzaamheden”)
which, for instance, would be the case if the activities with respect to Shares exceed “normal active asset management” (“normaal,
actief vermogensbeheer”) or if income and gains are derived from the holding, whether directly or indirectly, of (a combination
of) shares, debt claims or other rights (together, a lucratief belang) that the holder thereof has acquired under such circumstances that
such income and gains are intended to be remuneration for work or services performed by such holder (or a related person), whether within
or outside an employment relation, where such lucrative interest provides the holder thereof, economically speaking, with certain benefits
that have a relation to the relevant work or services.
If
either of the abovementioned conditions (a) or (b) applies, income derived from Shares and the gains realized upon the acquisition, redemption
and/or disposal of Shares will in general be subject to Netherlands income tax at the progressive rates up to 49.5%.
If
the abovementioned conditions (a) and (b) do not apply, a holder of Shares who is an individual, resident or deemed to be resident in
the Netherlands will not be subject to taxes on actual income and capital gains in the Netherlands. Instead, such individual is generally
taxed at a flat rate of 30% on deemed income from “savings and investments” (“sparen en beleggen”), which deemed
income is determined on the basis of the amount included in the individual’s “yield basis” (“rendementsgrondslag”)
at the beginning of the calendar year minus a tax-free threshold. The tax-free threshold for 2021 is €50,000 (2022: €50,650).
Following recent case law from the Supreme Court of the Netherlands, the systematics of determining the deemed income from savings and
investments was changed by the Dutch government retro-actively to 2017. Based on these changes, the deemed income from portfolio investments
(such as investments in Shares) is determined based on the multiple-years weighted average realized with investments in bonds, shares
and real estate. For the years 2017-2021, the percentage was set between 5.28% and 5.69%. Given the current developments, resident individual
holders of Shares are recommended to consult their own tax adviser to determine the potential effect of the above changes in their specific
situation.
Holders
of Shares Resident in the Netherlands: Corporate Entities
A
holder of Shares that is resident or deemed to be resident in the Netherlands for corporate income tax purposes, and that is:
|
• |
another entity with a capital divided into shares; |
|
• |
a cooperative (association); or |
|
• |
another legal entity that has an enterprise or an interest in an enterprise to which the Shares are attributable,
|
but
which is not:
|
• |
a qualifying pension fund; |
|
• |
a qualifying investment fund (fiscale beleggingsinstelling) or a qualifying exempt investment Institution
(“vrijgestelde beleggingsinstelling”); or |
|
• |
another entity exempts from corporate income tax, |
will in general be
subject to regular corporate income tax, against the regular Dutch income tax rates mentioned above over income derived from Shares and
the gains realized upon the acquisition, redemption and/or disposal of Shares, unless, and to the extent that, the participation exemption
(“deelnemingsvrijstelling”) applies.
Holders
of Shares Resident Outside the Netherlands: Individuals
A
holder of Shares who is an individual, not resident or deemed to be resident in the Netherlands will not be subject to any Netherlands
taxes on income derived from Shares and the gains realized upon the acquisition, redemption and/or disposal of Shares (other than the
dividend withholding tax described above), unless:
|
(a) |
such holder has an enterprise or an interest in an enterprise that is, in whole or in part, carried on
through a permanent establishment (“vaste inrichting”) or a permanent representative (“vaste vertegenwoordiger”)
in the Netherlands and to which enterprise or part of an enterprise, as the case may be, Shares are attributable; or |
|
(b) |
such income or capital gain forms a “benefit from miscellaneous activities in the Netherlands”
(“resultaat uit overige werkzaamheden in Nederland”) which would for instance be the case if the activities in the Netherlands
with respect to Shares exceed “normal active asset management” (“normaal, actief vermogensbeheer” or if such income
and gains are derived from the holding, whether directly or indirectly, of (a combination of) shares, debt claims or other rights (together,
a “lucrative interest” (“lucratief belang”)) that the holder thereof has acquired under such circumstances that
such income and gains are intended to be remuneration for work or services performed by such holder (or a related person), in whole or
in part, in the Netherlands, whether within or outside an employment relation, where such lucrative interest provides the holder thereof,
economically speaking, with certain benefits that have a relation to the relevant work or services. |
If
either of the above-mentioned conditions (a) or (b) applies, income or capital gains in respect of dividends distributed by ICTS or in
respect of any gains realized upon the acquisition, redemption and/or disposal of Shares will in general be subject to Netherlands income
tax at the progressive rates up to 51.75%.
Holders
of Shares Resident Outside the Netherlands: Legal and Other Entities
A
holder of Shares that is a legal entity, another entity with a capital divided into shares, an association, a foundation or a fund or
trust, not resident or deemed to be resident in the Netherlands for corporate income tax purposes, will not be subject to any Netherlands
taxes on income derived from Shares and the gains realized upon the acquisition, redemption and/or disposal of Shares (other than the
dividend withholding tax described above), unless:
| |
(a) |
such holder has an enterprise or an interest in an enterprise
that is, in whole or in part, carried on through a permanent establishment (“vaste inrichting”) or a permanent representative
(“vaste vertegenwoordiger”) in the Netherlands and to which enterprise or part of an enterprise, as the case may be,
Shares are attributable; or |
| |
(b) |
such holder has a substantial interest in ICTS, that (i) is held with
the avoidance of Netherlands income tax as (one of) the main purpose(s) and (ii) forms part of an artificial structure or series
of structures (such as structures which are not put into place for valid business reasons reflecting economic reality).
|
If
one of the above-mentioned conditions applies, income derived from Shares and the gains realized upon the acquisition, redemption
and/or disposal of Shares will, in general, be subject to corporate income tax against the regular Dutch corporate income tax
rates mentioned above, unless, and to the extent that, with respect to a holder as described under (a), the participation exemption
(“deelnemingsvrijstelling”) applies.
Gift,
Estate and Inheritance Taxes
Holders
of Shares Resident in the Netherlands
Gift
tax may be due in the Netherlands with respect to an acquisition of Shares by way of a gift by a holder of Shares who is resident or deemed
to be resident of the Netherlands.
Inheritance
tax may be due in the Netherlands with respect to an acquisition or deemed acquisition of Shares by way of an inheritance or bequest on
the death of a holder of Shares who is resident or deemed to be resident of the Netherlands, or by way of a gift within 180 days before
his death by an individual who is resident or deemed to be resident in the Netherlands at the time of his death.
For
purposes of Netherlands gift and inheritance tax, an individual with the Netherlands nationality will be deemed to be resident in the
Netherlands if he has been resident in the Netherlands at any time during the ten years preceding the date of the gift or his death. For
purposes of Netherlands gift tax, an individual not holding the Netherlands nationality will be deemed to be resident of the Netherlands
if he has been resident in the Netherlands at any time during the twelve months preceding the date of the gift.
Holders
of Shares Resident Outside the Netherlands
No
gift, estate or inheritance taxes will arise in the Netherlands with respect to an acquisition of Shares by way of a gift by, or on the
death of, a holder of Shares who is neither resident nor deemed to be resident of the Netherlands, unless, in the case of a gift of Shares
by an individual who at the date of the gift was neither resident nor deemed to be resident in the Netherlands, such individual dies within
180 days after the date of the gift, while being resident or deemed to be resident in the Netherlands.
Certain
Special Situations
For
purposes of Netherlands gift, estate and inheritance tax, (i) a gift by a Third Party will be construed as a gift by the Settlor, and
(ii) upon the death of the Settlor, as a rule his/her Beneficiaries will be deemed to have inherited directly from the Settlor. Subsequently,
such Beneficiaries will be deemed the settlor, grantor or similar originator of the Separated Private Assets for purposes of Netherlands
gift, estate and inheritance tax in case of subsequent gifts or inheritances.
For
the purposes of Netherlands gift and inheritance tax, a gift that is made under a condition precedent is deemed to have been made at the
moment such condition precedent is satisfied. If the condition precedent is fulfilled after the death of the donor, the gift is deemed
to be made upon the death of the donor.
Value
Added Tax
No
Netherlands value added tax will arise in respect of or in connection with the subscription, issue, placement, allotment or delivery of
the Shares.
Other
Taxes and Duties
No
Netherlands registration tax, capital tax, customs duty, transfer tax, stamp duty or any other similar documentary tax or duty, other
than court fees, will be payable in the Netherlands in respect of or in connection with the subscription, issue, placement, allotment
or delivery of the Shares.
Residency
A
holder of Shares will not be treated as a resident, or a deemed resident, of the Netherlands by reason only of the acquisition, or the
holding, of Shares or the performance by ICTS under the Shares.
Documents
on Display
We
are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements,
the Company files reports and other information with the United States Securities and Exchange Commission (“SEC”). These materials
may be inspected at the Company’s office in Schiphol-Oost, The Netherlands. Documents filed with the SEC may also be read and copied
at the SEC’s public reference room at 100 F Street N.E. Room 1580 Washington, DC 20549 USA. For further information please call
the SEC at 1-800-SEC-0330. All the SEC filings made electronically by ICTS are available to the public on the SEC web site at http://www.sec.gov
(commission file number 0-28542). Those reports are also available free of charge at www.ictsintl.com.
Subsidiary
Information
Not
applicable