Jurisdiction shopping for agricultural groups

In the second half of 2011 and 2012 there have been numerous corporate restructurings in Ukrainian agricultural sector. An absolute majority of Ukrainian agricultural groups used the most popular foreign jurisdictions, such as Cyprus and the Netherlands, to set up their holding companies. At the same time, we have witnessed interest in such jurisdictions as Luxembourg, Austria, Germany and Switzerland.

Selection of a jurisdiction for incorporation of the group’s holding company depends on the owners’ short and long term future plans: (i) initial public offering or private placement of shares; (ii) issuance of debt securities; (iii) creation of a joint venture; (iv) geographical expansion of business and ‘evasion’ into a particular foreign market, etc. Additionally, attention should be paid to the jurisdiction’s reputation, available tax planning options, optimization of cash flows, confidentiality and business protection issues.

Constant discussions on revision of the existing double tax treaty with Cyprus did not have significant impact on the long-standing popularity of this jurisdiction, rather allowed some businessmen to negotiate reduced company incorporation and annual maintenance fees. Downtime on capital markets negatively affected Luxemburg, which was often used in the first half of 2011 to facilitate approval of IPO prospectuses.