Joint Debt – A Matter of Form

This article was originally published in Blakes Bulletin on Tax And Corporate Finance, April 2004

Where there is a financing of a multinational group of affiliated corporations, it is becoming more common to have the indebtedness issued by several of the affiliated corporations as co-issuers, in which case there are various tax issues to address.

Although each co-issuer is jointly and severally liable under jointly issued debt, the funds themselves are advanced to the separate co-issuers in predetermined proportions. While the economic effect is somewhat similar to debt coupled with cross guarantees, the tax analysis can be surprisingly complex.

The simplest case is that of a parent and its wholly owned subsidiary. There, although the parent and the subsidiary are referred to as co-issuers of the indebtedness, the entire amount borrowed is often advanced to the subsidiary. The situation is not dissimilar to a borrowing by a wholly owned subsidiary which is guaranteed by its parent.