The article was published on October 22, 2025 in Äripäev.
Tõnu Kolts represented the taxpayer who received the first positive binding advance ruling on a debt push down structure following the publication of the 2024 guideline.
When the Estonian Tax and Customs Board (ETCB) published its guidance on the taxation of debt and equity push-down structures in December 2024, it marked, in many ways, the beginning of a new era in the taxation of acquisition structures. The guidance summarises years of discussion on when acquisition financing may be transferred to the target company level so that post-merger loan and interest payments made by the target do not give rise to Estonian corporate income tax.
What Is a Debt Push Down?
A debt push-down structure is a situation in which the loan used to acquire a company is transferred to the target company after the acquisition. This allows the loan and interest payments to be serviced from the cash flows generated by the target’s own business operations. In turn, this means the target does not need to distribute dividends subject to Estonian corporate income tax to enable the acquirer to service the acquisition financing.
Internationally, debt push-down structures are widely used. In Estonia, they have also been applied, but the tax authorities have traditionally taken a cautious approach, viewing such structures as artificial. The ETCB’s 2024 guidance introduced new ground rules: investment funds received a green light due to the specifics of their activity, while the message to typical corporate taxpayers remained more cautious.
The guidance emphasised that a debt push-down is permissible only where the transaction has economic substance and a legitimate business purpose, and does not create a tax mismatch. At the same time, the guidance provided few examples and did not clearly explain how and when these criteria would be considered satisfied.
The First Binding Advance Ruling
The ETCB has now issued the first positive binding advance ruling addressing an acquisition structure in which the loan taken for the acquisition is, after the merger, transferred to the target company, which will then service the acquisition loan and related interest.
This ruling is significant as it confirms that such structures may be acceptable not only in the context of fund transactions, but also for conventional corporate buyers – provided they derive from genuine business and financing needs.
The ETCB examined four core aspects: business purpose, economic substance, actual financing need, and legal justification. However, it must be stressed that every acquisition structure is unique, even when a debt push-down mechanism is used, so that no single advance ruling can be applied universally.
Business Purpose
In a debt push-down structure, it must be clearly justified that the transaction has a genuine business rationale and is not primarily intended to obtain a tax advantage.
The use of such a structure must stem from real business needs – such as consolidation of activities, simplification of operations, or increasing efficiency within the group.
The justification cannot rely solely on general strategic statements. It must be supported by specific business arguments and documented analysis demonstrating how the structure contributes to the company’s or group’s long-term objectives.
Importantly, the business purpose must be measurable and verifiable rather than merely declaratory. It may rely, for example, on business plans, integration scenarios, or financial projections that show the transaction creates real added value rather than solely a tax benefit.
Economic Substance
When assessing the permissibility of a debt push-down structure, it is necessary to demonstrate the economic substance of the transaction. The transaction must create real added value for the parties – in terms of operations, cash flows, or management.
Economic substance may arise from cost savings, consolidation of activities, more efficient processes, or synergies achieved through shared support functions. Crucially, such impacts cannot remain abstract. They must be supported by business and financial analyses demonstrating the transaction’s long-term impact.
In practice, this means that economic substance must be quantified and documented, for example, through cash flow analyses or forecasts confirming that the transaction creates genuine value.
Actual Financing Need
A central element of the debt push-down analysis is demonstrating that the acquisition financing is economically justified and arises from a genuine financing need. Moving the acquisition loan to the target level must be a logical and necessary part of the financing structure, not a mechanism for achieving a tax advantage.
In practice, the taxpayer must be able to explain why the chosen financing structure is economically justified and the only feasible option under market conditions. This justification may include the terms of financing offers, the target’s ability to service the debt, or restrictions imposed by lenders.
Legal Justification
The legal form chosen for a debt push-down structure must also be justified by statutory constraints or the internal logic of the transaction, not by a desire to obtain a tax advantage.
Such transactions often use a special purpose vehicle (SPV) to carry out the acquisition and subsequent merger. The use of an SPV must be objectively justified, for example, when the target cannot itself take the acquisition loan or finance the acquisition directly.
Where the legal structure derives from objective constraints and the necessary steps for implementing the transaction, rather than from the intention to gain a tax benefit, it should not be regarded as an artificial arrangement.
A New Framework for Companies
The first favourable binding advance ruling confirms that debt push-down structures are not automatically prohibited or taxable in Estonia. Their permissibility depends on substantive justification and transparency – particularly whether the transaction has a business rationale, economic substance, genuine financing need, and a legally justified structure.
The ruling represents a significant development in the Estonian tax landscape and provides companies with greater certainty when planning acquisitions. However, each structure must still be assessed individually, based on the specific circumstances and supporting evidence. Debt push-down in Estonia now has a more clearly defined framework, but its application continues to require thorough analysis and well-grounded justification.
The author of this article represented a taxpayer who received the first favourable binding advance tax ruling on a debt push-down structure following the publication of the 2024 guidance.
