Dealing with crisis through M&A’s

Cyprus/October 2014

The EU membership of Cyprus entailed the implementation of the Acquis Communautaire, including the provisions of the Council Directive 90/434/EEC (“Merger Directive”).

The objective of the Merger Directive is to remove fiscal obstacles to cross-border reorganizations relating companies situated in two or more Member States.  As such, it provides for deferred taxation of income, profits and capital gains arising in the course of reorganization subject to the fulfillment of specific requirements.

Further to the transposition of Council Directive 2005/19/EC amending the Merger Directive, the national legislation extended the scope of benefits under the Merger Directive such as the transfer of registered seat and the elimination of related taxes to European Companies (“Societas Europaea” – SEs) and European Cooperative Societies (SCEs).

The current economic crisis facing the world constitutes a great threat to the business world and to the survival of many firms. A number of companies are at the edge of bankruptcy due to this downturn, whilst those that remain above this level must increase urgently their profitability in order to secure their success for the coming years.

Cyprus has not been left unaffected.

More companies are searching solutions which can effectively assist their businesses to ensure their survival and also accomplish for their welfare.

In  these  difficult  times,  restructuring  of  business  through  mergers,  acquisitions  and  joint ventures prove to be a viable option for reducing operational risks and avoiding insolvency. Provision of tax and business advice as well as guidance on these subjects is a prerequisite.

The M&A of companies aims generally to the merger of companies for the purpose of the creating a more powerful and stable structure of companies. Through proper planning companies can also achieve very favorable results in terms of reduction of risk and tax efficiency. M&A can also be used for expansions into new markets, with new prospects, while internal reorganizations can restructure the internal activities of a business for greater efficiency and significant cost savings. Similar outcomes can also result from a joint venture.

It is no secret that a significant number of acquisitions in the Balkan region have been made via Cyprus. The involvement of a tax-beneficial jurisdiction such as Cyprus allows to optimize not only the tax burden on companies under reorganization, but also to generate profit via expansion to new markets.

Katerina Charalambous
+357 22 699 222
Senior M&A Advisor