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Abstract: 

This article discusses the basic framework and purpose of the tax provisions of a credit agreement, with a focus on the concerns particular to a lender in negotiating such provisions. The tax provisions can be an important part of negotiations, as they allocate the tax costs and risks related to the borrowing and repayment of the loan among the various parties, which will have a continuing effect on the parties well after the money has been disbursed to the borrower. The allocation of tax costs and risks can have a material impact on the lender’s expected return on loans made pursuant to a credit agreement, as well as a significant effect on the collateral and other security for a loan. Lenders and their tax advisors should thoroughly understand the tax provisions in a credit agreement and take care to negotiate terms that will ensure that both their economic return and security support are protected.

Keywords: Credit agreement; lender; allocation of taxes; withholding; IRC Sec. 956

Affiliations:  1: New York Law School; 2: Bryan Cave.