Author: Beyza Günsel Sürücü
Introduction
Through Article 20 of Law No. 7440 on Restructuring of Certain Receivables and Amending Certain Laws (“Law No. 7440”), published in the Official Gazette dated 12 March 2023 and No. 32130, significant and new tax regulations regarding debt push down financing structure for merger transactions are introduced. In this article, the situation of debt push down in mergers and what the regulation introduced by Law No. 7440 changes in tax terms are explained.
Debt Push Down in Merger Transactions
It is common in business life for companies to participate in the target company they wish to acquire as a parent company or through special purpose vehicles (“SPV”) established for this purpose and to realize such share purchases by obtaining loans.
In this context, “debt push down” may be defined as follows: (i) acquisition to be financed through loan takes place through the purchase of the target company’s shares by the parent company or an SPV established specifically for this purpose, (ii) then the acquired company and the parent company/SPV are merged as the tax-neutral merger within the scope of Article 19 of the Corporate Tax Law No. 5520 ("CTL"), (iii) thereby the loans obtained for the share purchase can be transferred to the acquired company. As a result of the structure mentioned above, the interest on the loan obtained for the share purchase can be deducted from the taxable income of the acquired company. The said merger can take place downwards (within the acquired company) or upwards (within the acquiring company).
