Bifalgorithm post · Fuscalite · Nuvei v. Arrap - NSW Supreme Court finds that a post-closing voluntary disclosure by the target so as to deplete escrowed funds did not violate a duty to cooperate with the vendor

Escrow Funds

Escrow Funds (Fuscalite · Nuvei v. Arrap - NSW Supreme Court finds that a post-closing voluntary disclosure by the target so as to deplete escrowed funds did n…

Ideas in this flowchart

  • Nuvei and Arrap used an escrow arrangement to address potential additional withholding tax in the share purchase.
  • Before closing, Nuvei was purchasing the shares of an Australian company from Arrap.
  • The Company’s deemed dividend may have been subject to a 30% non-treaty withholding rate instead of the generally applicable 15% Australia-U.S. Treaty rate.
  • The investors had not established that the ultimate owners of the US LLC and LLP recipients were US residents.
  • Nuvei and Arrap agreed to place part of the purchase price into escrow.
  • The escrow was intended to cover the potential additional withholding tax liability.
  • The escrow period was 18 months.
  • The Australian Taxation Office could determine during that period that the additional withholding tax was payable.
  • If there was no such determination within 18 months, the escrowed funds would be released to Arrap.
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Escrow Funds

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"Prior to the closing of the purchase of the shares of an Australian company (the “Company”), the Australian purchaser (“Nuvei”) identified that a deemed dividend paid by the Company may have been subject to withholding tax at the non-treaty reduced rate of 30%, rather than the 15% rate generally applicable under the Australia-U.S. Treaty, given that the various US LLC and LLP recipients of the deemed dividend (the “investors”) had not established that their ultimate owners were residents of the US. It agreed with the Australian sellers (“Arrap”) that a portion of the purchase price would be placed into escrow for 18 months to cover off this potential liability, and that if there was no “determination” by the Australian Taxation Office (“ATO”) within the 18-month period that the additional withholding tax was payable, the escrowed funds would be released to Arrap."

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