Page 33 - Strategic Tax Planning for Global Commerce & Investment

Strategic Tax Planning for Global Commerce and Investment

that it previously had). The question arises as to how the
leverage in the subsidiary can subsequently be increased. As
shown in the graph bellow, a way of re-leveraging the
subsidiary may be for the parent to sell the subsidiary to a
leveraged holding company in the country of the subsidiary.

This technique presupposes that:

 Country B allows some form of tax consol-
idation or tax-free merger
 Interest expense in the new holding com-
pany in country B is deductible

 The subsidiary can be transferred under
the new holding company without a signif-
icant cost.

This technique must be evaluated under the tax laws of each
jurisdiction involved since some countries will challenge such a
debt push-down on the basis of general anti-avoidance rules.

Use of Intragroup Financing Companies

The effective tax charge on intragroup interest income is often
reduced by routing the loans through a special purpose finance
company, located in an appropriate jurisdiction which benefits
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