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    Structuring a Transaction
 
 

Key Issues for consideration

  • Geographical locations and tax regimes
  • How to fund the acquisition
  • Debts VS equity
  • Shares VS assets
  • Holding company structure
  • Cash repatriation requirements and withholding tax issues
  • Subsequent strategy for investments

Investment into Asia

  • Structures similar to those for investment into Europe work quite well for Asian investments.
  • In respect of investments into India, particularly important to manage the withholding tax obligation – a Mauritian sub holding company is often required.
  • In respect of investments into China, use of Hungarian investment company generally works well.
  • Singapore is also sensible holding company jurisdiction due to no capital gains a relatively low stable and favorable tax systems and good treaty network.

Investment into the US

  • A major issue is in respect of withholding tax obligations in US on both interest and dividends.
  • Limitation of benefits (LOB) clause in tax treaties works through to trace residence of ultimate owners and effectively seeks to present “treaty shopping’
  • Hungarian intermediate holding company generally works well as US/Hungary double tax treaty does not have LOB clause.
  • Treaty expected to be negotiated over next few years, Hungarian tax authorities are likely to seek to draw negotiations out
  • Alternative structures available through structuring with Hungarian branch of a polish company.

Structuring in Europe
General points

  • Within Europe a number of directives exist which seek to remove withholding taxes on dividends, interest, royalties and capital flows, under certain conditions.
  • Not all countries have adopted these so still need to take care.
  • Should be possible to use Europe based holding company to hold investments but care needs to be taken on subsequent cash repatriation to ME.
  • Treaty network between Europe and ME still in developing phase, a number of treaties although negotiated are not yet in force.

 

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