A large Luxembourg private equity house was intending to pay a large dividend from its local investment company in France prior to sale.  The PE house considered that the payment of the dividends should be exempt from withholding under the EU Parent Subsidiary Directive.

The buyer of the investment companies raised the concern during the due diligence process that the payment of the dividend could be liable to withholding tax.  The buyer’s concern was in relation to the recent Danish withholding tax case-law in respect of beneficial ownership.  The seller refused to give an indemnity and suggested to the buyer that insurance may be a solution.  We analysed the substance of the PE house in Luxembourg.

We issued a policy to the buyer for £3m to cover it for any withholding tax due on the payment.   The seller co-operated fully with the process, providing full details on the group structure and we managed to issue the policy within 3 days from being instructed.  The policy gave the buyer comfort given that it was not able to obtain a indemnity from the seller for the issue.