A financial institution was acquiring a portfolio of interests which included certain French real estate assets.  A French RETT risk was identified in relation to certain of the entities to be acquired and the financial institution was not willing to bear any risk in respect of matters arising out of the structuring of the target entities.

A question was raised as to whether the loans advanced by certain of the Target entities could either be recharacterised as equity or disregarded entirely, which would result in certain of the target entities being “real estate companies” for French tax purposes which would then trigger a French RETT liability on the sale to the purchaser.

We worked with our French tax adviser to better understand the nature of the loans advanced and the risk of such loans being disregarded.  We then issued a policy to cover both elements of the risk, other than in respect of the disregard of the loans due to the application of anti-avoidance legislation.