The impact of Pillar Two and the BEPS Actions on finance transactions

United Kingdom

Increasing interest rates, inflationary costs and the threat of restricted growth (or even recession) continue to add pressure on borrowers. Those pressures, combined with the lower headroom on financial covenants since higher interest rates have taken hold, will mean a number of financing transactions will be under stress. That stress can be further exacerbated if there is a risk of additional tax exposure materialising, particularly in highly structured transactions. In certain markets, that has focused lenders’ minds on the borrower’s tax structuring and analysis, particularly with respect to the application of some of the more complex international rules coming out of the OECD/G20 BEPS Project.

In this Banking and Tax briefing, we focus on three changes that originated from the BEPS Project – the anti-hybrids rules, the corporate interest restriction and Pillar Two – and how they might impact a borrower group’s structuring and financial modelling. We also consider where lenders’ concerns may lie and how borrowers might be able to pre-empt those in preparing to source finance.

The upcoming implementation of Pillar Two represents a seismic development in international tax and so that is where we will focus much of our discussion.

Please click here to read the briefing.