Both operating businesses and investment funds need to design their structure, operations and acquisitions and divestitures of assets with an eye to U.S. federal, state and local tax consequences. Whether these tax consequences are the principal focus of a transaction or an auxiliary concern, all parties need to appreciate them before proceeding.
Caplin & Drysdale advises clients on the most tax efficient means of achieving their goals taking into account the relevant operational, financial, accounting and regulatory priorities and constraints. When transactions or investors cross international borders, Caplin & Drysdale brings to bear its considerable experience with U.S. tax treaties and the U.S. taxation of foreign investors and investments and its extensive network of relationships with tax advisors throughout the world.
The choice of legal entity and the manner of its capitalization must be made with an eye to the tax status and future plans of its owners. In cross-border situations, hybrid entities -- treated differently in different jurisdictions -- may be appropriate. Caplin & Drysdale has extensive experience with these issues in a variety of circumstances.
Our experience with tax-free corporate reorganizations, taxable acquisitions, like kind exchanges, installment sales, debt restructurings and the issuance and holding of various financial products is both broad and deep. We assist fund management companies in structuring their operations and help them address complexities that arise when these entities operate in multiple jurisdictions. We have extensive experience in assisting fund management companies when partners join and leave and in planning for generational shifts. We have structured hedge funds, private equity funds, venture capital funds and real estate funds and have helped them assess the tax consequences of buying, holding and selling their investments in financial instruments, portfolio companies and other assets. We have particular experience in the application of U.S. tax treaties to these situations.
More so than in many other jurisdictions, clear and contemporaneous documentation is crucial as it relates to U.S. tax matters. Clients must know the tax consequences from the outset, not discover them when the year-end accounting is done or tax returns prepared. Even standard organizational documents can present traps for the unwary. Amorphous doctrines such as "substance over form" and “economic substance,” as well as a variety of statutory and regulatory anti-abuse rules add further complications. Transactions and legal entities may be characterized differently for tax purposes than under non-tax law or in other jurisdictions.
Negotiating with partners and counterparties is often a matter of separating the merely important from the critically important, and being able to look around corners to see what construction not only the other parties but the tax authorities might be inclined to put on the transaction in the future. Caplin & Drysdale can both participate in the drafting and negotiation of such documents and provide a second review when needed with respect to entity formation, investment, acquisition, sale and financing documents.
When a hedge fund executive with a complex, multi-jurisdictional tax profile started a new hedge fund and management company, Caplin & Drysdale attorneys served as the principal advisor to the project, coordinating the tax planning, legal structuring, transfer pricing and documentation efforts of legal and accounting professionals in multiple jurisdictions.
When a multinational corporation was concerned that financing transactions contemplated by its European affiliates could unnecessarily create "subpart F" income, Caplin & Drysdale worked with foreign advisors on a restructuring that resulted in the participants becoming a single taxpayer for U.S. tax purposes, eliminating the potential concern.