Debt Push Down Agreement

After January 1, 2018, the provisions of the Corporate Tax Act prevent access to tax benefits arising from the debt-push-down structures covered by Section 16, paragraph 1, paragraph 1, paragraph 1, point 13th of the Corporate Tax Act. The provision expressly provides that taxpayers cannot treat the debts used to finance the acquisition of business shares as tax-deductible costs, as these costs would reduce the taxable base that includes the revenues generated by the company`s activities, including mergers, in-kind contributions, conversions to another legal form or the formation of a tax capital group. The basic acquisition structure for a debt boost is implemented as follows: At first, the investor integrates an acquisition vehicle in the form of a legal entity. The investor provides the necessary capital to finance the acquisition and grants the vehicle, if necessary, additional shareholder loans. In addition, the acquisition vehicle typically borrows funds from banks to finance the acquisition. Such a financed acquisition vehicle acquires the shares of the target company. This structure in principle excludes any risk of liability for investors, since the financing is not repayable. The debt reduction mechanism and its results have yet to be tested in Turkish courts. The lack of precedent encourages caution among lawyers who advise on AM transactions. Since the objective does not allow the SPV to acquire its shares, an upstream or downstream debt reduction merger cannot be taken into account as part of the financial assistance ban. From a legal point of view, even if such a merger has a negative effect on the financial status of the objective, the mergers code of commerce provisions allow for mergers through the acquisition of insolvent or liquidable companies. An appropriate acquisition and financing structure is one of the factors that make the M-A`s operations successful. The use of maximum leverage in an acquisition where the return on assets exceeds interest expense results in a significantly higher return on equity.

This is why investors (for example. B in an LBO or MBO) want maximum borrowing financing, also taking into account an increased risk of insolvency and a strategic reduction in business opportunities due to less financial flexibility. In many cases, the acquisition, followed by a merger of the acquisition vehicle with a debt brake, is not tax-related at all. The main reason for the use of a new acquisition vehicle is undoubtedly the isolation of the responsibility of the total investment. An international comparison of acquisition financing shows that direct financing without the use of the objective is highly unusual. Once the acquisition is complete, the acquisition company will no longer be useful. To limit the liability of the investor, it is sufficient that the target company remains a stand-alone legal entity. It is therefore obvious to merge the acquisition vehicle with the target company. Other structuring alternatives may be considered depending on the starting situation. For example, it is possible to transfer income-generating assets from the target company to the acquisition company through a tax-neutral intragroup transfer (also known as an asset push-up).

It should be noted, however, that in some cases the tax authorities not only characterized this transaction structure as tax evasion, but also refused the tax deduction of interest charges.