reasons for structuring in PE firstly individual special purpose vehicles or spvs can be set up in different countries or jurisdictions to help maximize access to Collateral for lenders.
By being in the same jurisdiction as the operating entities assets and cash flows.
While sbv's higher up the structure can be set up in jurisdictions, which optimize Regulatory and tax treatment of the acquisition.
For when capital gains and dividends are received. For example, Luxembourg may be used higher up in the structure to allow for preferential tax treatment of capital gains and income.
Whereas debt may be loaned lower down to spvs that are set up in the operating countries of the underlying business.
Secondly using separate entities can help reduce the risk that debt Capital might be treated as equity and interest payments as dividends.
by local tax authorities Which would eliminate the tax shield arising from deductibility of interest payments to debt holders. This is relevant for debt with Equity like characteristics such as Mezzanine Financing and shareholder loans.
Which do not necessarily have fixed interest payments.
or repayment schedules like Bank debt while bidco is often in the same country as the target other vehicles can be located in other jurisdictions to optimize fiscal treatment of dividends capital gains and interest.
Finally other reasons for holding entities in different jurisdictions are for example.
To help individual investors who may be limited by which jurisdictions they can send Capital efficiently such as us investors investing in European funds for whom it is tax or legally advantageous to send and receive Capital distributions to certain jurisdictions only.
Or to serve the PE funds future exit strategy for sale or an IPO for a particular investment. For example for an IPO exit setting up an investment structure where the holding company is in the jurisdiction where the PE firm plans to list the company upon exit.
