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About the deal. Two industrial groups agreed to combine part of their assets in a RUB 500 million transaction. The deal was complicated from the outset by the fact that some of the buyer’s assets were structured through three different jurisdictions.
What was done. The team carried out due diligence on the target assets, agreed the deal structure to meet the requirements of all three jurisdictions and supported the closing, including the settlements between the parties.
The outcome. The deal closed within the timeframe agreed by the parties, without any change to the original terms, which is a rare result for a transaction of this complexity.
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The rules on which a multi-jurisdiction M&A deal is built
Choosing the form of the deal and the applicable law. A deal is structured either as a transfer of shares or interests, or as a sale of an enterprise as a property complex (Articles 454 and 549-560 of the Russian Civil Code). The choice of form determines the scope of due diligence and the procedure for registering the transfer of rights. Where a deal is structured across several jurisdictions, the parties separately agree the governing law of the key transaction agreements, to avoid contradictions between them.
Currency control. Settlements between parties from different jurisdictions fall under Federal Law No. 173-FZ on Currency Regulation and Control, in particular the resident’s obligation to ensure repatriation of funds due under the deal and to notify the servicing bank of the transaction.
A special procedure for deals with a foreign element. If one of the parties is connected with a jurisdiction classed as unfriendly, certain operations with interests in Russian companies require the approval of the Government Commission for Control over Foreign Investment (Presidential Decree of 8 September 2022 No. 618).
Tax residency and CFCs. If foreign structures fall within the perimeter of the deal, the participants must take account of the controlled foreign company rules (Articles 25.13-25.15 of the Russian Tax Code), including notifying the tax authority of any change in a holding in a foreign organisation.
The provisions most often engaged by a deal of this kind:
How multi-jurisdiction deal support usually runs
The sequence of stages is similar for most deals of this kind. What differs is the number of participants and the time needed for approvals in each jurisdiction.
Due diligence
Parallel legal, tax and currency review of the assets and the structure in each jurisdiction concerned, covering not only the parent company but also the intermediate links in the chain of ownership.
Structuring the deal
Choice of the form of the deal, the governing law of the key agreements and the settlement arrangements between parties registered in different jurisdictions.
Approvals
The parties’ corporate approvals, currency control notifications and permissions and, where necessary, clearance from the Government Commission or the antimonopoly authority.
Closing and post-settlement obligations
Simultaneous satisfaction of the closing conditions in every jurisdiction, settlements between the parties and subsequent notifications to the tax authorities of changes in holdings in foreign structures.
What deal support on this scale usually involves
Support on a deal of this scale is rarely limited to a single sale and purchase agreement. The team runs several tracks in parallel, from legal review of the assets to post-settlement tax notifications.
Support usually includes:
Risks in cross-border M&A deals
Conflict of governing laws. Different jurisdictions regulate the transfer of corporate control, representations and warranties and liability for their inaccuracy in different ways. Without a clear choice of governing law in the key agreements, the parties risk conflicting interpretations of the same terms.
Currency restrictions and repatriation. The requirement of Law No. 173-FZ to ensure repatriation of funds due under the deal applies to the resident regardless of the currency used or the jurisdiction through which settlements are made.
CFC status after closing. If, as a result of the deal, a participant acquires a holding in a foreign structure above the threshold (25%, or 10% where Russian residents together hold more than 50%), a duty arises to notify the tax authority and to apply the rules on taxing the profits of controlled foreign companies.
Regulatory restrictions for certain jurisdictions. If the counterparty is connected with a jurisdiction classed as unfriendly, certain operations with interests in Russian companies require the Government Commission’s permission. Without it, the deal may be challenged.
Related areas:
Common mistakes when structuring a multi-jurisdiction deal
Coordinating jurisdictions one after another rather than in parallel. If due diligence and approvals in each jurisdiction are handled in turn rather than at the same time, the overall timeline stretches several times over. With three jurisdictions, the difference can amount to several months.
Settlements that ignore currency control requirements. Transferring funds without prior notice to the servicing bank, or without regard to the repatriation requirement, risks not only a fine but also a challenge to the deal itself.
Inconsistent closing conditions. If the closing conditions in agreements governed by the laws of different jurisdictions are worded differently, the parties may find that one part of the deal has closed and another has not.
Missing post-settlement obligations. The duty to notify the tax authority of a holding in a foreign organisation continues after the deal has closed. Missing it has nothing to do with how smoothly the negotiations and settlements went.
Cross-border M&A in numbers
Thresholds and deadlines to keep in view when structuring a deal with a foreign element.
Frequently asked questions
How are three jurisdictions handled in a single M&A deal?+
Each jurisdiction applies its own corporate and tax law to its part of the structure. Approvals are handled in parallel, with one partner as the main point of contact.
How long does due diligence usually take for a deal of this size?+
From a few weeks to a couple of months, depending on the number of jurisdictions involved and the complexity of the asset structure.
Would you like to discuss a similar deal?+
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