Global financing under pressure: tax risks, fund structuring and regulatory hurdles?

A report on a session at the 15th Annual IBA London Finance and Capital Markets Tax Conference held on 26 and 27 January 2026

Chair

James Somerville, A&L Goodbody, Dublin

Panellists

Anette Maier, Allianz Global Investors, Munich

Eugenio Romita, Giovannelli e Associati, Milan

Jessica Kemp, White & Case, London

Clemens Philipp Schindler, Schindler Attorneys, Vienna

Mark Leeds, Pillsbury Winthrop Shaw Pittman, New York

Rafael Calvo Salinero, Garrigues, Madrid

Reporter

Wieger Kop, Houthoff, Amsterdam

Introduction

James Somerville introduced the topic first. The panel discussed various tax aspects of financial transactions by chronologically assessing the various steps of a financing transaction. The panel then went on to discuss various fund structures, beneficial ownership, withholding taxes and interest deductibility.

Panel discussion

Mark Leeds kicked off the discussion by describing a typical United States feeder structure, whereby a US special purpose vehicle (SPV) engages in loan origination activities and sells these to a Cayman fund structure with non-US investors. The use of a Cayman feeder provides a form of protection for US investors and works on a tax neutral basis. However, some investors, especially European investors, often lose treaty protection in situations where a Cayman entity is involved, which means that no treaty access is provided. The structures themselves did not receive a lot of attention from the US Internal Revenue Service (IRS), but a new ruling believed to involve the International Finance Corporation clarifies that an SPV orphan structure can exist despite the SPV not having all the relevant creditor rights.

Rafael Calvo Salinero explained that Spain recognises lenders in various EU and designated treaty jurisdictions, with special rules to assess the residence of certain regulated and non-regulated funds. In all cases, it is important to assess the legal and tax nature of the vehicle. Specifically, a tax transparency review is required, which varies between various EU jurisdictions and in regard to different vehicles.

Jessica Kemp explained that UK fund vehicles are less common. Luxembourg is generally preferred as it allows a more compartmentalised approach to the vehicles. For single asset vehicles, qualifying asset holding companies (QAHCs) can still be useful and they also do not require you to travel to Luxembourg. The UK has also published new guidance on situations in which a fund is considered to be active. Furthermore, the UK has new carried interest rules that require a 40-month asset holding period in order to apply the lower 34.1 per cent tax rate on carried interest.

Eugenio Romita discussed the treaty issues involving a typical debt fund structure. In regard to these types of structures, the fund jurisdiction tax treaty likely does not apply as the fund is tax transparent. Even if an opaque SPV is used between the fund and the borrower, treaty application hardly ever occurs due to the lack of a beneficial ownership requirement in regard to the SPV. Nevertheless, the investors in the fund may obtain treaty benefits based on the Organisation for Economic Co-operation and Development (OECD) Partnership Report.

Anette Maier introduced a German special authorised investment fund (AIF) as a fund that can itself be treaty eligible and shields investors from target jurisdiction filing obligations. Under the German–US double tax treaty, the German special AIF may obtain treaty benefits if at least 90 per cent of its investors are treaty eligible pursuant to Article 28 (6) (limitation on benefits (LoB)) of the treaty. It is an attractive fund option that can accommodate a wide range of EU/European Economic Area (EEA) investors.

Romita clarified that Italy grants a domestic withholding tax (WHT) exemption to an SPV if the SPV is in a whitelisted country and is allowed to grant loans to the public pursuant to the Italian banking law, but this condition is hardly used in practice. In a 2025 landmark ruling, the Italian Supreme Court ruled that a look-through approach is allowed against an SPV in order to check the exemption requirements directly in the hands of the fund which has led to the broader application of the WHT exemption. The Supreme Court judgment overturned the long-standing position of the Italian tax authorities, thus opening up the Italian market to foreign lending funds.

In Spain, the WHT exemption is generally applicable to paid-in-kind (PIK) interest whenever the tax is due (when the interest is paid or becomes claimable), although there are ongoing beneficial ownership discussions that, in these cases, have a particular nature since no cash is paid (and, therefore, nothing is repaid up the chain of lenders). Furthermore, there are some discussions on the taxation of transactions whereby loans are purchased at a discount. Under Spanish domestic law, the margin realised on these types of transactions (specially, in the case of loan portfolio acquisitions) is treated as interest, but, in some cases, it is defendable to consider this a capital gain, which results in a more favourable tax treatment under tax treaty provisions.

Maier discussed beneficial ownership questions in relation to sub-participations in existing debt. Depending on the contractual terms of the sub-participation agreement, the beneficial ownership in the interest of the underlying debt can shift from the lender to the sub-participant. As a consequence, the WHT treatment of the interest could be impacted.

Clemens Philipp Schindler discussed a 2025 court case whereby the Austrian tax authorities denied interest deduction at the Austrian creditor level on a loan that was structured using a Curacao entity, as the effective tax rate on the interest was as low as four per cent. Whether or not this denial of interest deductibility is in line with EU law is still unclear, as the Supreme Court case is still pending. Furthermore, Austria has rules requiring debtors to disclose information on which party is the true recipient of the interest payments, thus potentially the burden of proof may also be reversed.

Kemp then went on to explain that the tax implications of trading a qualifying asset holding company (QAHC) in a distressed setting depends on whether the trading is considered an active trading activity or an investment. If a QAHC is leading in regard to the insolvency procedures, this may be considered a trading activity. It is important to assess this specifically in regard to the QAHC in question. The attitude of His Majesty’s Revenue and Customs (HMRC) is also important for distress situations, as it has secondary preferred creditor status for various taxes. This grants HMRC a stronger position in insolvency procedures. HMRC is also the key instigator of insolvency procedures.

Schindler closed the session by stating that tax risks arise when there is distress shareholder debt, as the debt may be qualified as an equity instrument. Furthermore, the debt waiver may trigger certain Austrian tax consequences, although it is generally possible to structure this in a tax neutral manner.

Maier also highlighted that a broader variety of lenders may increase the complexity of restructurings. Specific regulatory and tax limitations may prevent straightforward debt-to-equity swaps. In relation to German restructurings, she clarified that a binding ruling should be sought in order to apply the tax exemption to restructuring gains.