Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Monthly Archives: January 2013

UK UPDATE – Tax Issues on Cross-Border Acquisitions

Editors’ Note: Contributed by Nigel Boardman, a partner at Slaughter and May and a founding director of XBMA.  Mr. Boardman is one of the leading M&A lawyers in the UK with broad experience in a wide range of cross-border transactions.  This article was authored by Slaughter and May tax partner Gareth Miles and associate Tom Jarvis.

Executive Summary:

In cross-border acquisitions, more than one country’s tax rules will apply.  English law is frequently chosen to govern such transactions.  This article highlights a number of the main tax issues arising in cross-border share and asset purchases, and discusses how some of these issues can be eliminated or mitigated through efficient structuring or specifically addressed in the sale and purchase agreement.

Main Article:


A cross-border private acquisition is an acquisition of one or more private businesses comprising companies and/ or assets, where the purchaser, the seller and the target companies/assets are not all in the same jurisdiction. The cross-border element of these transactions inevitably means that more than one country’s tax rules will be in play in the same transaction. English law is frequently chosen to govern these transactions and it is usually commercially desirable to have one set of contractual provisions applying across the board.

In this article, we highlight a number of the main issues that do not arise on solely UK acquisitions. Some of these can be eliminated or mitigated through efficient structuring and some may need to be dealt with specifically in the sale and purchase agreement.


Withholdings required from the purchase price
If a withholding for or on account of tax is required from the purchase price, it would go directly to value by affecting the amount receivable by the seller or, if a gross up is included in the agreement, payable by the purchaser.

Who should bear the cost or risk of a withholding? Where it is clear that a withholding is required, the question is made easier as the cost is known, so it can easily be factored into price.

The more difficult question is who should bear the risk where it is not certain that a withholding is required as it is harder to factor that risk into price. On one hand, withholding is a requirement on the purchaser and the purchaser will at the time of payment need to decide whether to withhold. And, if there is no gross up, there is not much commercial pressure on a purchaser to be robust in taking a view that a withholding is not required. On the other hand, in most circumstances withholdings relate to the location of the assets being sold and the tax position of the seller.

Should the parties seek confirmation from the appropriate tax authorities that no withholding is required or would that raise an unnecessary red flag? If the seller takes the risk, should there be conduct rights and/or an indemnity against the purchaser’s costs of being pursued by a tax authority after completion in respect of a withholding that the tax authority asserts should have been, but was not, made?

Allocation of consideration
In a cross-border transaction, more than one tax authority is likely to have a vested interest in how the purchase price is allocated between the target assets and/or shares. Not only might such authority disagree with the parties’ allocation, it might also disagree with the opinion of other tax authorities. This makes the issue of allocation more complicated than on a purely UK transaction and so the parties will need to ensure that they have robust defensible positions so that they obtain the tax value they expect from the transaction.

Indemnity and warranty payments
In a UK transaction, ESC D33 provides comfort that where payment is made by a seller of an asset to a purchaser under a warranty or indemnity included under the terms of sale, the consideration for the sale will be adjusted and that payment will not be treated as a capital sum derived from the asset. Most jurisdictions take an equivalent approach, but not all may.

Other jurisdictions may take different approaches on related matters. On a recent Brazilian transaction the target company would have obtained tax relief for the settlement of certain tax liabilities covered by the tax covenant (whilst this may be the case in the UK for employer’s NICs, it is not generally so) and the purchaser was expecting tax depreciation in respect of a significant part of the purchase price. As payments under the tax covenant would have constituted reductions in consideration, the purchaser would have suffered a significant loss of tax depreciation on those payments being made. Here, the combination of a payment under the tax covenant (which would ordinarily have been calculated taking into account the tax relief available on settlement of the tax liability) and a gross up for tax on receipt would not, due to the reduced tax depreciation, have put the purchaser back in the position it would have been in had the relevant tax liability not arisen. That would have been unacceptable from the purchaser’s perspective. The parties could have used a gross up that, as well as covering tax on receipt, covered the loss of tax depreciation. In the circumstances, however, the parties decided it was preferable for both sides to ignore the tax relief available on settlement of the tax liability in calculating the amount due under the tax covenant, the benefit of which would roughly equate to the lost tax depreciation, and to use a gross up for tax on receipt only.

Stamp duty
Any stamp duties or other transfer taxes arising on the transaction should be identified at an early stage. It might be that on a global purchase some of those could be mitigated by, for example, having a local transfer agreement for a particular jurisdiction.

Could anything done by the seller affect the transfer taxes payable? In Italy there is currently a concern that a pre-sale business hive-out to another group company followed by a sale of the transferee to a third party might be recharacterised as a direct sale of the business to the third party, resulting in significant transfer taxes for which the parties involved could be jointly liable.

Transitional services
Transitional services may be required by the purchaser. In a cross-border deal, care should be taken to ensure that there is no unnecessary tax leakage in providing or paying for those services, particularly due to withholding tax on cross-border payments and different VAT requirements in the relevant jurisdictions.


On acquiring companies, a purchaser may request a tax covenant to protect it against unexpected tax liabilities of those target companies. A UK-style tax covenant can generally be tweaked to cover non-UK jurisdictions in which the target companies are liable for their own tax liabilities; however, special attention must be given to jurisdictions in which target companies are taxed on a consolidated group basis and part of the consolidated group is purchased.

As a matter of local law, are those target companies responsible for tax relating to their own actions or income, profits and gains? If not, subject to the next point, is a tax covenant actually required?

Are there any “re-charges” in respect of that tax for which the target companies could be liable and are those target companies in any way liable for the consolidated group’s tax? If so, a tax covenant would need to be tailored accordingly.

Do exit charges arise on leaving the consolidated group? Who benefits from pre-completion reliefs and is there a requirement for payments to be made in respect of them? Care must be taken to ensure that local tax law does not cut across the intention behind the contractual tax protection.

Change of control
When companies are acquired, there is likely to be a change of control both at the level of acquisition and for subsidiaries below. This can lead to tax being triggered in the acquired group (such as, in some circumstances, German real estate tax) as well as deferred tax assets being put at (increased) risk. It might be possible to mitigate some of those effects through careful structuring.

We note above that it is usually commercially desirable to have one set of contractual provisions applying across the board. That is true in relation to ongoing compliance matters, although there may be certain bespoke provisions needed in relation to particular jurisdictions. Further, if the seller is exiting a particular jurisdiction, it might make sense for the purchaser (or target company) to prepare pre-sale tax returns with the seller having a right of review, as opposed to the other way around.


In a UK share purchase it is common for a purchaser to seek protection in respect of certain of the target company’s tax liabilities, but, on an asset sale, protection is not generally sought for any tax relating to the business’s pre-completion profits. That is because, as a matter of English law, such tax liabilities do not transfer to a purchaser. That might not be the case in other jurisdictions and, in such cases, bespoke protection for succession taxes may be advisable.

Do the parties expect the asset transfer to constitute a transfer of a going concern and so be outside the scope of VAT? Whilst VAT law in all EC countries should derive from the same starting point (Articles 19 and 29 of the Principal VAT Directive (Directive 2006/112/EC)), each such country may require the fulfilment of different conditions in order for relief to be available — the sale contract would need to cover those conditions.


Whilst the above is by no means an exhaustive list of the issues on cross-border acquisitions, it gives a flavour of some that can arise. Each transaction tends to involve bespoke issues which will need to be addressed.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

CANADIAN UPDATE – Governance Insights 2012

Editors’ Note:  This update was submitted by I. Berl Nadler, a partner at Davies Ward Phillips & Vineberg LLP and a leading Canadian corporate lawyer who has been involved in numerous high-profile financing transactions and acquisitions worldwide on behalf of multinational corporate clients.

Executive Summary:

In our annual review of the topics shaping governance today, we consider the ideas that will trend in boardrooms across Canada for months and years ahead.  The dominant theme is the shareholder.  Directors need look no farther than the events of 2012 to convince them that shareholders have the power to seize the governance agenda.

We believe that the first response of boards to shareholder activism is changing dramatically in light of recent events.  Our section on the Power and Influence of Canadian Shareholders looks at the experience of three issuers (Canadian Pacific, Research in Motion and Magna) confronted by shareholder demands for governance change.  In each case, the shareholders used different tools to effect change, and in each case they were successful.  Boards in 2013 will incorporate the lessons learned from these situations in considering their own response to shareholder concerns with their governance practices.

At the same time, boards of Canadian issuers will also be able to draw on the experiences in 2012 when they believe that the actions of a few shareholders threaten the fair treatment of all shareholders.  In Boards Seek Fairness for All Shareholders, we describe the sudden emergence of the “empty voting” dilemma on the Canadian governance scene.  The success of TELUS Corporation in dealing with a proxy challenge from an “empty voter” has engaged the courts, regulators, investors and issuers in public policy discussions that may have significant impact on shareholder decision making.  We also examine the adoption of “advance notice by-laws” by more than 30 issuers (largely in the mining sector) in order prevent a surprise attack on the floor of the annual meeting from effectively disenfranchising the vast majority of shareholder who vote by proxy based on disclosure in the proxy circular.

In Shareholder Democracy Movement Continues we consider the status of two comparatively new governance practices relevant to all public companies.  The first is majority voting.  Two of the elements of majority voting (individual director voting and disclosure of voting results) have been widely adopted by Canadian issuers and have now been made mandatory by the TSX.  In 2013, boards will need to consider carefully the approach they should take if any director receives a majority of withhold votes.  Absent extraordinary circumstances, there will be strong shareholder demand for the resignation of that director.  The other recent governance development is say on pay.  Say on pay has been adopted by almost all TSX 60 issuers, but has not been widely adopted by other issuers.  Nor have Canadian regulators or exchanges indicated that they intend to mandate say on pay, although that remains a possibility.  It is important for boards to be aware that in 2012, shareholders demonstrated that they will use say on pay to send a message to the board, when the first Canadian issuer lost its say on pay vote.

Shareholder rights are never more directly engaged than in the process by which they cast their votes.  Focus on the Integrity of the Shareholder Vote Intensifies brings up to date developments in the very important, if complex, area of the proxy voting system in Canada.  Davies has been a thought leader in this area with the release in 2010 of The Quality of the Shareholder Vote in Canada.  In 2012, many of the topics discussed in that paper have garnered the attention of the courts and of securities regulators and will likely continue to be influential in the year ahead.

While the interaction of shareholders with the issuers in which they invest was the overwhelmingly dominant theme in governance in 2012, governance of emerging market issuers was another important issue.  Issuers with operations in emerging markets have been the subject of extensive regulatory focus and enforcement activity throughout 2012, a trend that we expect will gain force in 2013.  Challenges in Overseeing Operations in Emerging Markets sets out for management teams and boards of these Canadian issuers, some of the most important challenges that will demand their attention in 2012.  Among these is the focus of Canadian regulators on financial reporting and other disclosure controls as well as the increased enforcement activity under anti-bribery legislation.  In 2013, boards of issuers with operations in emerging markets should be particularly sensitive to risks posed by anti-bribery legislation and the way in which those risks are being managed.  The reputational damage suffered by issuers such as SNC-Lavalin in 2012 should provide a compelling incentive for boards to get out ahead of this issue in 2013.

We end our review with a catalogue of the most recent developments in governance standards under New Governance Guidelines, Criteria and Rankings.  The Canadian Coalition for Good Governance has released important new guidance and both ISS and Glass Lewis have updated their proxy voting guidelines for 2013.  OSFI is also in the process of updating its governance guidelines for financial institutions, with a renewed emphasis on risk management.  Interestingly, Standard & Poor’s issued new governance criteria in 2012 which will form an important part of its assessment of the creditworthiness of an enterprise it rates.

View the full article: Davies Governance Insights 2012

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.


Editors’ Note:  XBMA’s Review is published on a quarterly basis using consistent metrics and sources of data in order to facilitate a deeper understanding of trends and developments. We welcome feedback and suggestions for improving the Review or for interpreting the data.

Executive Summary/Highlights:

  • Global M&A volume in 2012 reached US$2.6 trillion, marking the third consecutive year of steady deal volume in the US$2.6 trillion per annum range.
  • Uncertainty and other familiar constraints held back the M&A markets for the first three quarters of 2012, but deal volume surged in Q4 which, coupled with stabilizing markets, cash stockpiles and cheap credit for certain borrowers, bodes well for continued deal activity in 2013.
  • Larger deals (exceeding US$10 billion in value) rebounded, with 16 deals exceeding US$10 billion in value, and 10 deals exceeding US$15 billion in value.
  • Notably, spin-offs and divestitures accounted for almost half of global M&A activity in 2012.
  • Cross-border transaction volume in 2012 exceeded 2011 by a small margin, accounting for 36% of global M&A in 2012 compared to 35% in 2011. The domestic/cross-border split has been consistent over the past three years, still markedly lower than its pre-crisis level in 2007.
  • For the second consecutive year, the volume of deals involving a developed economy acquiror and an emerging economy target declined, while the volume of deals involving an emerging economy acquiror and a developed economy target increased, as emerging market companies increasingly look abroad for new markets and resources and seek ways to deploy foreign capital reserves.
  • Energy & Power continued to dominate global and cross-border deal volume.

Click here to see the Review

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

GLOBAL UPDATE – Why Chinese Firms’ Cross-Border Deals Fall Apart

Editors’ Note: This article was contributed by Laurence Capron and Will Mitchell, coauthors of the book Build, Borrow, or Buy. Ms. Capron is the Paul Desmarais Chaired Professor of Strategy & Director of the M&As and Corporate Strategy Program at INSEAD. Mr. Mitchell holds the Anthony S. Fell Chair in New Technologies and Commercialization at the University of Toronto.


  • Chinese firms too often announce deals and are then unable to follow through.  According to a study (forthcoming) by Olga Hawn of Duke University, cross border deals involving Chinese companies are almost twice as likely to break down (15% of the time) as deals involving companies from other BRICS countries (8%) and three times as likely as those involving Western multinationals (5%).
  • While there are many explanations for this, failing to complete deals wastes significant out-of-pocket costs and management time and energy.  Over time, it will damage the ability of Chinese firms to expand and adapt as companies will become even more wary of their Chinese suitors.
  • To reduce the cancellation rate of their announced acquisitions, Chinese firms must
    1. Make sure that acquisitions are aligned with strategy,
    2. Assess the political attitude in the target country,
    3. Make sure there is no opposition at home, and
    4. Consider sequential engagement.


During the past decade, Chinese firms have become aggressive cross-border acquirers. Unfortunately they have been struggling to actually close their deals.Some deals have failed because of national security concerns in the U.S., including CNOOC’s attempt to purchase Unocal in 2005 and Huawei’s attempt to buy 3Leaf Systems in 2011.

More often, though, Chinese firms have announced deals and are then unable to follow through. For instance, Bright Food was near closing on a deal to purchase GNC for between $2.5 billion and $3.0 billion in 2011, but then had to retract because the companies could not agree on terms and struggled to get Chinese regulatory approval.

These examples are rather more typical than they should be. According to a study (forthcoming) by Olga Hawn of Duke University, cross border deals involving Chinese companies are almost twice as likely to break down (15% of the time) as deals involving companies from other BRICS countries (8%) and three times as likely as those involving Western multinationals (5%).

There are many explanations for this. Chinese companies are relatively new to the M&A game, governments in many target markets are quick to detect a political agenda, Chinese companies sometimes struggle to obtain financing or face unexpected political opposition at home, and many acquiring Chinese firms operate in particularly dynamic — and volatile — global markets.

These are all perfectly good reasons. And walking away from bad deal is a good thing. That’s precisely why seasoned acquirers like Cisco, GE, Siemens, and Johnson & Johnson have strong processes to enforce discipline throughout their acquisition process and can kill as many potential deals as they make.

But as these companies also know walking away from a deal is best done before the deal is announced. Cancelling an announced deal causes substantial losses not only for the acquirer but for the target as well. Failed deals impose significant out-of-pocket costs (financial advisory fees and due diligence expenses) and take up a lot of management time and energy, distracting many senior managers from important line responsibilities. If companies are incurring these costs unnecessarily they are destroying value.

More importantly, though, the difficulty Chinese firms seem to have in completing deals will over time damage their ability to expand and adapt. Companies will become even more wary of their Chinese suitors than they already are if they have to worry about being left at the altar and this may foreclose many opportunities for Chinese companies.

So although many Chinese acquirers are becoming more adventurous in their deal-making deals, they need to reduce the cancellation rate of their announced acquisitions. To do so, they must:

1.  Make sure that acquisitions are aligned with strategy. Companies jump to an acquisition out of fear of missing an expansion opportunity. This is a recipe for failure and acquirers need to make sure that their M&A strategy is aligned with a well thought-through broader strategic plan. Obviously, this requires that you have a robust strategic planning process to begin with, which is not always the case in China.

2.  Assess the political attitude in the target country. Governments in most countries will review major foreign investments. As noted, several high profile deals involving Chinese firms, such as CNOOC’s 2005 attempt to purchase Unocal in the U.S., have been blocked, either formally or by delaying the negotiations to the point that the buyers withdraw. Before going too far with your acquisition process, Chinese acquirers need to assess how the target’s local government is likely to react.

3.  Make sure there is no opposition at home. Although some deals may be blocked in the target countries, others fail because of opposition at home. Tengzhong’s 2010 attempt to buy Hummer from General Motors, for instance, fell apart because of opposition from the Ministry of Commerce in China. Before embarking on deals that are likely to be controversial inside China, Chinese acquirers should first make sure there is a clear path for approval.

4.  Consider sequential engagement. When there is high uncertainty about the value of the combination or how you will be able to work with your foreign target, you may want to start out with a more focused partnership. You can start with a specialized alliance or undertake an initial equity stake and gradually deepen your relationship.

Bottom line, we suspect that too many Chinese companies are opportunistic dealmakers. They need become more sophisticated in their M&A processes and should explore more carefully less headline-grabbing ways of acquiring new resources and capabilities, along the lines we set out in our book, Build, Borrow, or Buy. If they do so, their cancellation rates will fall and they will be seen as more reliable M&A counterparties, which will open up more opportunities for them.

Originally published on the Harvard Business Review blog.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

PANAMA UPDATE – Legislation Creates Incentives for Multinationals to Establish Headquarters in Panama


Editors’ Note: Carlos G. Cordero G. is a senior partner at Alemán, Cordero, Galindo & Lee and a member of XBMA’s Legal Roundtable.  Alemán, Cordero, Galindo & Lee Is one of Panama’s leading law firms in the offshore area as well as in representing large corporations doing business in Panama.  Mr. Cordero concentrates on Commercial Law, Banking and Administrative Law, with specialization in mergers and acquisitions, government contracts and commercial arbitration.

Executive Summary:

The MHQ laws create a comprehensive scheme for multinational corporations seeking to establish a global or regional headquarter in Panama.  Multinational corporations are now opting to setup operations in Panama as a staging point for pursuing their pan-LatAm strategies (Panama playing a similar role to Singapore and Hong Kong in the Asian market).


In a concerted effort to promote the country’s long-term growth prospects, the Panamanian legislature enacted Law No. 41 of 2007, as amended by Law No. 45 of 2012  (the “MHQ laws”), which created a comprehensive scheme for multinational corporations (including its subsidiaries and/or affiliates, a “Multinational”) seeking to establish a regional headquarter in Panama (“Multinational Headquarters” or “MHQs”).  The MHQ laws seek to promote the establishment of MHQs by (i) providing MHQs and employees with considerable regulatory, labor, fiscal and tax benefits (vis-à-vis other foreign entities operating in Panama under different regulatory schemes) and (ii) streamlining the application process by centralizing and standardizing the various procedures (e.g., immigration, work permits, etc.) within a single department at the Ministry of Commerce and Industry.  Since its enactment, more than sixty Multinationals have set up an MHQ in Panama, including (but not limited to) Procter & Gamble, Dell, Caterpillar, Nestle, VF Corporation and Maersk.

Benefitting from LatAm’s most interconnected air and maritime hubs, Multinationals have successfully leveraged Panama’s infrastructure to improve upon the execution of their LatAm strategies.  From an M&A perspective, LatAm offers very attractive opportunities for both developed and emerging markets alike looking to engage in strategic acquisitions (e.g., with a view to secure key natural resources and/or to open new markets).  For example, in 2010, Chinese foreign investment in LatAm surged to approximately US$11 billion (a 44% year-over-year increase).  Beyond just focusing on mining and resources, Chinese companies are looking to increase their investments in LatAm in a broad swath of industries, including infrastructure, manufacturing, agribusiness and forestry.  In addition to Chinese companies, Multinationals from around the world are opting to setup operations in Panama as a staging point for pursuing their pan-LatAm strategies (Panama playing a similar role to Singapore and Hong Kong in the Asian market).


The MHQ laws provide considerable fiscal and tax benefits for MHQs and their personnel.  At the MHQ level, any income generated from its international operations (i.e., ex-Panama) is tax exempt.   Panama has a territorial tax system, and as such, MHQs are permitted to breakout their IBT[1] (i.e., into Panama and Global ex-Panama) and pay local income taxes only on their locally generated portion of IBT, if any.  Furthermore, the most recent amendments to the MHQ laws have further strengthened this “ecosystem” by allowing MHQs to provide services to any entity, whether foreign or domestic, that does not generate Panama sourced income without forgoing the income tax exemption for revenues generated from said activities.

The MHQ laws also provide MHQs with a value added tax exemption (Impuesto de Transferencia de Bienes Corporales Muebles y la Prestación de Servicios or ITBMS) for services rendered abroad.  For example, services rendered by an MHQ to any of the Multinational’s subsidiaries and/or affiliates operating abroad are exempt from the 7% value-added tax.  Services rendered by an MHQ locally however, continue to be subject to the 7% value-added tax.  Furthermore, MHQs may transact amongst themselves within Panama without forgoing the value added tax exemption for revenues generated from said activities.  Lastly, MHQs are also exempt from paying dividend tax.

In terms of human resources benefits, another very important advantage for MHQs (vis-à-vis other foreign entities operating in Panama under a different regulatory scheme) is that they are exempt from the Panamanian legislation that imposes strict local-to-foreign personnel ratios.  By law, unless there is specific legislation to the contrary, any and all entities operating in Panama may only have up to 10% of their work force consist of foreign personnel.  Duly licensed MHQs however, have considerable flexibility when it comes to hiring foreigners.

The MHQ laws also provide foreign executives and middle management working in Panama (“Foreign Executives”) with several benefits as well.   For example, salaries paid to Foreign Executives from any of the Multinational’s offices abroad are exempt from income tax.  Furthermore, Foreign Executives may import certain household items into Panama without having to pay any import taxes.[2] Also, any and all foreign personnel working for an MHQ in Panama are exempt from paying social security contributions in Panama.[3]

Regarding immigration issues, MHQs can now conduct immigration procedures directly through the Ministry of Commerce and Industry (eliminating the need to transact these procedures separately at the Immigration Bureau).  Pursuant to the MHQ laws, the following new visa categories were created for MHQ personnel: (i) visas for permanent MHQ personnel;[4](ii) visas for temporary MHQ personnel;[5](iii) visas for dependents of permanent MHQ personnel;[6]and (iv) visas for MHQ personnel attending to a special event.[7] MHQ personnel may also opt for permanent residency after having had a valid MHQ visa for a period of five consecutive years.


In order for an operation/office to qualify as an MHQ under the MHQ laws, an MHQ is required to provide “services” to its global or regional headquarters, subsidiaries and/or affiliates from its operation/office in Panama.  For the purposes of the MHQ laws, the term “services” includes (but is not limited to) the following: (i) administration and/or management of a Multinational’s operations; (ii) management of a Multinational’s logistics and/or warehousing; (iii) provision of technical assistance to a Multinational and/or its customers; and (iv) providing financial management, accounting, consulting, and/or such other analogous service to a Multinational.

MHQs can be established through any of the following bodies corporate: (i) a foreign body corporate (i.e., the holding company and/or a subsidiary of a Multinational) duly registered with the Public Registry of Panama, and/or (ii) a Panamanian body corporate owned by a Multinational.

To obtain an MHQ license from the Ministry of Commerce and Industry, a Multinational must submit an application to the License Commission of Multinational Headquarters (the “Licensing Commission”).   The list of documents requested by the Licensing Commission as part of the application includes (but is not limited to) the following:  (i) the incorporation documents of the applicant; (ii) the audited, consolidated financial statements of the Multinational, which must evidence assets equal to or in excess of US$200 million; (iii) a reference letter from a reputable bank; (iv) an estimate of the initial investment to be made by a Multinational to start-up the MHQ; and (v) a list of such Foreign Executives that will occupy executive and/or middle management positions at the MHQ.  All documentation filed with the Licensing Commission must be translated into Spanish by a certified public translator and legalized and/or apostilled by the competent authorities.  The application process generally takes approximately thirty working days (i.e., calculated as the date the completed application is filed with the Licensing Commission).



[1]Income before taxes

[2]Foreign executives may only avail themselves of this exemption for goods imported in connection to their initial relocation to Panama.  Nevertheless, foreign executives are allowed to import one car into Panama tax free every two years.

[3]This exemption is contingent on said employees (i) refraining from applying for permanent residency in Panama, and (ii) maintaining medical insurance throughout their entire stay in Panama.

[4]These visas are issued for a period of five years to Foreign Executives.  These visas can be renewed multiple times for an additional five year period.  Holders of this visa category are not required to obtain a separate labor permit in order to lawfully work in Panama.

[5]These visas are issued for a period of three months to any MHQ personnel.  Holders of this visa category are not required to obtain a separate labor permit in order to lawfully work in Panama.

[6]Their spouse and/or partner of over five years, underage children, dependent children under the age of twenty five studying in Panama, and their parents are eligible for this visa category.  These visas may be issued for a period of up to five years, and may be renewable depending on the duration of the applicable Foreign Executive’s visa.

[7]These visas are issued to MHQ personnel travelling to Panama on a temporary basis to attend a specific event (e.g., meeting, technical training program, etc.).  The length of these visas is determined on a case by case basis.


The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

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