A publicly listed European commercial real estate group was seeking to acquire a number of real estate assets in Serbia.

The Target companies had chosen to measure investment property in their accounts using a cost model. The buyer’s tax advisors were, however, of the view that the fair value model should have been applied, which led to the Target companies underestimating their investment properties’ values and net profit. Accordingly, there was a risk that the Serbian tax authority could assess the Target companies for underpaid Serbian CIT, broadly, on the difference between net book and the fair value of the property.

We worked closely with both tax lawyers and accountants in Serbia to underwrite this risk, as it was primarily an accounting point but it also required an understanding of the Serbian tax authority’s current guidance and practice in this area. There was mixed opinion among the accountants on the correct model to be applied, which created difficulty for the parties to agree a resolution of this point and this was holding up the transaction.  However, insurance was able to provide a solution and allow the deal to complete.