Cross-border restructurings – PRS International

There has been much activity in cross-border restructurings as of late, at least in the EU/EEA zone, and more is likely to come in the wake of the Mobility Directive. Most of these activities consist not of international mergers or split-offs, but of seemingly uncomplicated transactions.

Consider an example. A partnership registered in Germany wants to transfer shares in a subsidiary resident in another EU country to one resident in Germany. What aspects of company law need it take into account? Can the foreign subsidiary be “attached” 100% to the German subsidiary or does the country’s company law require at least two shareholders? What requirements must the parent company satisfy for tax purposes? As a rule, a double taxation treaty will prevent the country in which the foreign company resides to impose a tax on the transaction. However, taxes may still apply, especially if there was a previous restructuring. In any case, future dividends will no longer be subject to withholding tax in the foreign state of residence as per the Parent-Subsidiary Directive, unless anti-tax avoidance provisions apply abroad. What are the relevant substance requirements? Are they to be interpreted restrictively in the sense of a “reduction of invalid provisions to preserve validity” in accordance with the ECJ rulings in Deister Holding AG, Juhler Holding A/S and GS? What significance is attached to the ECJ judgments N Luxembourg 1 etc. and T Danmark etc. in the foreign state of residence?

Domestic restructurings can of course also have a foreign dimension, as when mergers or contributions in Germany end up indirectly moving companies resident abroad. In this case, a careful analysis of the relevant provisions in the foreign state or states involved must be performed before the restructuring. Are there effects on tax loss carryforwards? Will transfer taxes on real estate be incurred because the companies have real-estate holdings? In some cases, built-in capital gains may also be recognized abroad – in China or India, say. In others, extensive foreign compliance requirements may apply, which can include the preparation of costly business valuations.

Together with input from my partner experts, I can provide a detailed analysis prior to your restructuring and offer detailed guidance on the implementation of your project. I will also take into account company law and other legal aspects by consulting with lawyers in Germany and abroad.