This subject, which occupies DSM teams during a good part of the year, takes on even more importance as the temperature drops. The purpose of this article is to give you a few points to think about to move forward more calmly towards the end-of-year celebrations.
The first point to bear in mind when managing an international group is that the impact will not be the same everywhere. In some jurisdictions, it is possible to effectuate this debt-equity conversion with retroactive effect, but not only is this not the case everywhere, it also entails a risk for the companies concerned, namely a risk of non-enforceability against the tax authorities.
One must also be careful with respect to the nature of the debt and require a shopping list to know, jurisdiction by jurisdiction, what is possible. For example, is it possible to contribute loans, payments made on another entity’s behalf, fees for services provided, etc.? Moreover, can one contribute from an indirect shareholder or go down the chain?
The implementation of the appropriate documentation is particularly important when being audited. Bookkeeping is key and this is where one will need a team that can optimize the legal documentation. Too often we arrive at the audit stage to find scattered loan agreements, sometimes half-signed but almost always not harmonized within the group, while most of the transactions should be executed at arm’s length according to transfer pricing principles with a single agreement executed within the group.
The last point to bear in mind is to check the other contractual commitments, in particular bank financing which could restrict room for maneuver. It is common to find clauses that limit the distribution of proceeds to a certain use or pledges on receivables.
One last piece of advice for the road: don’t neglect the paperwork, even if it may seem superfluous today, the more a company grows and the more it will be necessary to attract investors, reassure banks, and validate an audit. We hope that consideration of these tips will help prevent you from getting “stuck” in a few years, but whatever happens, our teams are here to find solutions to help you move forward. You innovate, we find your way forward. By Renaud LE SQUEREN, Partner – Avocat à la Cour, and Héloïse CUCHE, Senior Associate – Avocat à la Cour.
The BCC in partnership with the Ukraine-Luxembourg Business Club are pleased to invite our members to the Luxembourg-Ukraine Business Forum: "RAPID RECOVERY OF UKRAINE" which will take place on January 31st 2023 at Neumünster Abbey. This full-day Luxembourg – Ukraine Business Forum aims to add value to the broader discussions on Ukraine reconstruction as well as exploring opportunities for partnerships between European, Luxembourgish and Ukrainian business. It will leverage Luxembourg’s Financial Centre to define the necessary prerequisites and instruments for investors to deploy private capital for Ukraine’s reconstruction and recovery.
The purpose of the BCC Tax and Legal Newsletters is to provide additional regular bimonthly updates on key Tax and Legal developments in Luxembourg that may be relevant to your business. The present newsletters issued by member firms of the Tax and Legal groups cover the period from November - December 2022.
As members of the British Chamber for Luxembourg, you can connect with fellow members and also become engaged in the planning and creation of new events. By joining subgroups, participating in event planning, and taking on leadership roles, we can continue to create a vibrant and dynamic community that benefits everyone.