BGP Litigation senior associate Denis Savin speaks with Interfax about tax aspects of debt push-down schemes

"A debt push-down works as follows: investor A establishes an acquisition vehicle, which takes out a loan and buys company B. The acquisition vehicle is then merged with company B, with the obligation to repay the loan passing to the latter (operating company B), and company A becomes the owner. In other words, as a result company B receives its own shares (or part of them) on its books as well as the payables (the obligation to service the loan that was taken out by the acquisition vehicle to purchase it (company B)), explains Denis Savin, senior associate at BGP Litigation". 

"For the acquisition vehicle, the costs on the loan are economically justified and the business objective is obvious. But for the company that will be servicing the debt it is not economically sound, as the company does not receive any real financial resources under the arrangement, but instead only the obligation to service the loan. There is no economic benefit other than a tax benefit", says D. Savin. "From a tax standpoint the mechanism is highly risky", he adds".