MANAGING THE LEGAL AND TAX IMPLICATIONS OF CROSS-BORDER PARTIAL ASSET CONTRIBUTIONS
CASE STUDY #2
Issue:
Resolving the issue of branch-to-subsidiary conversion for French clients based in the Ohada zone - particularly in the Ivory Coast, Gabon and Congo, in a variety of sectors such as construction, oil and engineering.
Legal issues: Since the 2014 law, Ohada law has required foreign branches to remain on the territory of member states for a limited period of twice two years, after which they are required to convert to a subsidiary. This compliance with company law has many practical applications in different areas.
Partial contributions of assets entail the universal transfer of assets and liabilities, which means that all assets and liabilities are transferred to the subsidiary once the conversion has taken place. This transfer ensures, for example, that all contracts are transferred and relieves the contributor, who no longer bears the risks of the operation.
Challenge: These cross-border transactions, carried out between a French company (contributor) and a foreign company that receives the contribution (beneficiary), raise complex issues of private international law.
It is a matter of bringing a branch of activity into the local subsidiary set up for that purpose. If the operation takes place in a foreign country, it is the French company that carries it out, and this has consequences in terms of company law, tax law and employment law in particular. These technical and complex operations require numerous stages and a very dense process.
Tax analysis, through the tax treaty, helps to ensure the neutrality of the cross-border operation insofar as there are two countries involved, on two different continents. In addition, the company law and labour law analyses include regulatory aspects and numerous formalities in the two countries concerned. For example, we make sure that the CSE has been consulted in accordance with French law, and we always carry out the same checks under local law.
The operation also has an impact on the contractual part - often complex oil or construction contracts. After analysis, the transaction may also require tax approval - requested from the Ministry of the Economy, the declarations required from the BEAC (central bank) and the filings with the Trade Register.
Solutions: To best grasp the complexity of this cross-border operation, a detailed timetable of the procedure is prepared, covering the stages, the actions required, the documents involved and an analysis of the texts under local law (Ohada member countries) and French law. The operations are described from the point of view of both Ohada member country company law and French law. It is also necessary to take into account the taxation of restructuring operations in application of any international tax treaties. The French deeds and those of the Ohada member countries are then drafted by our local correspondents.
Result: In order to overcome any difficulties arising from the partial transfer of assets, the two laws - French law and the local law of the Ohada member country concerned - are applied together. For more details, see the article "Subsidiarisation of branches of foreign companies under Ohada law".
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