A developer of Spanish Real Estate was in the process of disposing of assets and was anticipating the declaration of a large liquidation dividend from their Spanish development company to their Luxembourg holding entity.

The declaration of dividends and repatriation of profits, cross-border and within the EU brings with it various international tax considerations, including beneficial ownership, substance, and domestic law subjective criteria on abuse. In the current case, the Developer was an experienced Private Equity Manager and was aware of the risks they faced when seeking an exemption from Spanish Non-Resident Income Tax (NRIT).

The Seller secured a policy that provided cover in the event that Spanish NRIT would apply, which enabled the Manager to return funds to investors up the holding chain, with the certainty that there would be no future claim against the fund or investors. This was specifically meaningful for the Manager as cash that would otherwise have been tied up or held  as a provision for a possible future liability, would have resulted in a considerable cash drag on the Fund internal rate of return.