GERMANY Law and Practice Contributed by: Michael Josenhans, Anouschka Zagorski and Christina Banz, Freshfields
4. Tax 4.1 Withholding Tax
share pledges to ensure the single point of enforce- ment (SPE), account pledges and assignments of certain receivables. Parallel debt structures are cus- tomarily used. Most security agreements have standard terms, leav- ing little room for negotiation. With few exceptions (mentioned below), security agreements can be exe- cuted by simple exchange of signatures (electronic, if agreed between the parties). Shares/Interests/Stocks Pledge agreements over shares in German limited lia- bility companies (contrary to pledge agreements over interests in partnerships and over stock in corpora- tions) need to be notarised, which may result in sub- stantial costs. The notarisation is usually attended by the legal advisers of each party based on a power of attorney, possibly requiring certification and legalisa- tion depending on the jurisdiction of the represented party. The perfection of a pledge requires that the relevant pledged entity be notified of such pledge (imple- mented either by the relevant pledged entity becom- ing a party to the agreement for the purpose of such notification or by requiring notification to be sent and evidenced within a certain time period – eg, five busi- ness days). In the case of certified stocks, the stock certificates need to be handed over or a substitute of such handover needs to occur. Sometimes, stock certificates need to be endorsed. Bank Accounts In correct legal terms, it is not the account as such that is pledged but the rights and claims which the account holder from time to time has towards the account bank in connection with the bank account. The perfection of account pledges requires that the account bank be notified of the pledge (implemented by requiring such notification to be sent and evidenced within a certain time period – eg, five business days). Movable Assets Security transfer agreements require the inclusion of certain details on the location or the identity of the assets and potential rights of third parties (eg, land-
Whether payments of principal, interest or other pay- ments made to lenders are subject to German with- holding tax depends on the financing structure. A “typical” loan agreement generally does not trigger withholding tax. However, certain exceptions exist – for instance, interest paid by a German tax resident debtor under profit participating loans, convertible bonds or certain other hybrid financing arrangements is subject to withholding tax. Interest payments also trigger a limited tax liability if the underlying loan is secured by German real estate. Accordingly, struc- tures to mitigate or manage withholding tax concerns are not generally required (ie, only in exceptional cas- es). 4.2 Other Taxes, Duties, Charges or Tax Considerations Besides withholding tax and limited tax liability aspects (as noted in 4.1 Withholding Tax ), lenders are usually not subject to German tax by making loans to (or taking security and guarantees from) entities incorporated in Germany. In particular, Germany does not levy stamp duty nor a net wealth tax. With respect to VAT, an exemption usually applies. 4.3 Foreign Lenders or Non-Money Centre Bank Lenders From a tax perspective, it is important that the lender not be associated with a tax haven jurisdiction. Rather, it is advisable for a lender and beneficial owner of the loan to be tax-resident in a tax treaty jurisdiction with a favourable double tax treaty with Germany. This would give the lender the typical tax protection of a qualifying lender.
5. Guarantees and Security 5.1 Assets and Forms of Security
A comprehensive collateral package will typically comprise collateral over all of the obligors’ assets to the extent that the cost benefit ratio and the agreed security principles justify it. Although this scope may differ in certain transactions, the customary package offered in private capital financings consists only of
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