Report on a session at the 25th Annual US and Europe Tax Practice Trends Conference held in Amsterdam on 11 April 2025

Session Co-chairs

Devon Bodoh, Weil, Gotshal & Manges, Miami
Nina Kielman, NautaDutilh, Amsterdam

Panellists

Dean Andrews, BMS Group, London
Andrea De Nigris, AndPartners, Rome
Floran Ponce, Lenz & Staehelin, Geneva
Jodi J Schwartz, Wachtell, Lipton, Rosen & Katz, New York
Johann Wagner, Gleiss Lutz, Hamburg

Reporter

Oscar Wik, Dittmar & Indrenius, Helsinki

Introduction

The panel discussed a range of hot topics in regard to mergers and acquisitions (M&A). The co-chairs and the panellists elaborated on the relevant considerations, tax and non-tax related, relating to the choice of the top company jurisdiction in a merger of equals involving a US group and a non-US group. They also discussed recent trends relating to take-private deals in their respective jurisdictions. Dean Andrews provided recent insights relating to tax insurance.

Panel discussion

After the opening words by panel co-chair Devon Bodoh, Andrea De Nigris provided insights into the tax environment in Italy. While Italy has not typically been an attractive top company jurisdiction, the Italian government has introduced a tax regime for non-Italian residents, which includes tax exemptions on foreign income, to attract the management of multinationals and, as a consequence, multinational groups to Italy.

Floran Ponce continued with an update on Switzerland, which is generally a more attractive top company location. Historically, Switzerland was often selected as the top company jurisdiction, even when none of the merging companies were Swiss companies. However, corporate law is less flexible and, nowadays, Switzerland is often only chosen as the top company jurisdiction in a merger involving a Swiss company. Switzerland has beneficial rules regarding taxation on dividends as paid-in capital can be formed, resulting in the possibility to distribute dividends without the application of withholding tax.

Johann Wagner provided an update on Germany and noted that if either of the merging companies is German, it could make sense to have a German top company. The application of real estate transfer tax may even make it beneficial to structure the top merging German entity as a top company. It is also possible for the existing German entities to form fiscal unity with the German top company. If a non-German top company is used, compliance efforts with respect to obtaining reduced withholding tax rates may be burdensome. German corporate law may not always be attractive, which is why in some cases, for example, a Dutch top company has been established, with the top company being tax resident in Germany.

Nina Kielman continued the discussion from a Dutch perspective and noted that nowadays non-tax reasons are the main driver for choosing the Netherlands as the top company jurisdiction. However, the Dutch tax system is still a good one in this context, for example, due to the country’s implementation of European Union directives and the broad double taxation treaty network. The Netherlands has a broad participation exemption for dividends and capital gains. Tax benefits may, however, be refused in cases of abuse, based on case law from the Court of Justice of the European Union. Anti-avoidance provisions have also been implemented in Dutch tax law. Non-tax reasons for choosing the Netherlands as the top company jurisdiction include its flexible corporate law, potential for dual listings and the protection offered against hostile takeovers.

Jodi J Schwartz noted that for a US business, the top company would typically be in the US or the other jurisdiction involved, where the merging company is located. US corporate law is very stable and flexible. The US also has low corporate tax rates, making the US attractive in this regard. However, US controlled foreign corporation (CFC) rules and global intangible low-taxed income (GILTI) apply to many companies. Inversion rules essentially make it impossible to combine a US and non-US group under a top company located in a third country. Typically, the US is selected as a top company jurisdiction due to market accessibility.

The next speaker, Dean Andrews, highlighted that it is becoming increasingly common for companies to purchase annually recurring tax insurance policies, which can insure against tax residency or taxes relating to the business, for example. A real benefit of an insurance policy is that it incentivises and acts as a reminder for companies to fulfil the minimum requirements set out in the relevant tax advice, as those requirements are incorporated into the policy through representations. A failure to meet the representations would be a breach of policy. Schwartz and Kielman further discussed the practical challenges relating to the establishment of substances for a top company.

Schwartz and Bodoh continued with a discussion on the challenges presented when drawing down debt to a US company in an all-stock transaction.

Ponce highlighted tensions between the desired tax structure and other legal considerations and deal certainty. In a Swiss context, a statutory merger can be preferable as it provides more certainty than a tender offer. A direct merger would not create paid-up capital, which is a challenge. Triangular mergers can be implemented, for example, with companies in the US and offshore companies, but with EU companies such a merger is very difficult due to corporate law constraints. A tender offer is an alternative and would create paid-in capital. A total of 90 per cent ownership is required to squeeze out the minority through a back-end merger. From the minority shareholder’s perspective, there is an incentive to tender shares in the tender offer, as a buyout in a back-end merger triggers the application of dividend withholding tax.

Wagner added that in Germany, the threshold for a squeeze-out is 95 per cent or 90 per cent in a merger and he discussed ways to manage the associated risks.

As the next discussion point, Bodoh introduced take-private cash deals. De Nigris highlighted two possible routes in terms of such deals in Italy. The buyer would either make a public tender for the shares in the top company or the top company would go through a process of delisting its shares and, subsequently, agreeing on a sale of the shares to the buyer. Interest deductibility on the acquisition debt may be challenged by the Italian tax authorities, but provided that the financing is genuine, the interest deductions should not be forfeited.

The panel further discussed the availability of tax rulings and tax certainty. Bodoh and Schwartz highlighted difficulties with rulings in the US and the growing importance of tax insurance. Andrews pointed out that the fastest growing area for insurance submissions relates to the Spanish tax authorities. The high likelihood of an audit in Germany and Italy has also been a driver of the demand for tax insurance in those jurisdictions. On the other hand, there is less appetite for insurers to take on domestic tax risks in countries like Egypt, India and Brazil, due to their ranking low on the corruption index and the requirement for insurers to have a local presence. International tax elements, such as double tax treaty applicability, may be easier to insure.

Andrews further noted that insurance is underrepresented in public deals due to a lack of management disclosure. However, insurance, even robust types, may still be available depending on the information and access available throughout the deal.

Bodoh and Andrews further discussed the dynamics between insurance and representations, warranties and indemnities, as well as the level of due diligence required to obtain insurance.

Wagner pointed out the challenges relating to the Organisation for Economic Co-operation and Development’s Pillar Two framework, wherein the risk does not relate to the target, but to the broader seller group. Andrews noted that Pillar Two is a hot topic in the insurance industry, with many unanswered questions on how to tackle the associated risks. Some insurers are looking for vendor due diligence (VDD) providers to include Pillar Two analysis in a separate report addressed to insurers only, so as to not share sensitive data with the buyer.

Conclusion

As the final discussion topic, Bodoh raised a question around minority squeeze-outs and invited to Kielman to discuss a specific Dutch structure in this context. Kielman outlined the details of a pre-agreed back-end transaction, which would make sure that the buyer is able to acquire 100 per cent of the target directly. Typically, the offer period would be extended for a limited period after reaching a certain ownership threshold (usually 80 per cent). A back-end transaction will be implemented if not all the shares are acquired during the tender. In this scenario, the Dutch top company would incorporate a new Dutch subsidiary, which would incorporate a new Dutch merger subsidiary for the purpose of implementing a triangular merger. The minority shareholder would receive a separate share class during the merger, which will be cancelled against a cash payment. The cancellation is subject to Dutch withholding tax. Kielman further noted that a back-end transaction can be implemented in one day.

Schwartz added that Dutch back-end transactions are very attractive from a US tax perspective as it is critical to reach 100 per cent ownership immediately, which is generally not possible in other EU jurisdictions. Finally, Ponce and De Nigris also discussed the migration of Swiss and Dutch companies to the Netherlands.