German food flavourings maker Symrise and its Mexican subsidiary are suing Baker & McKenzie for £11.7m at the High Court, arguing that the law firm’s advice on ‘aggressive financial engineering’ to avoid tax in Mexico failed when the company paid out £11.2m.
Baker & McKenzie drew up a tax reduction plan called ‘Project Hit/Win’ in 2002 for private equity firm EQT as it sought to create Symrise by combining German flavourings companies Dragoco and Haarmann & Reimer. Debt from EQT’s €1.5bn purchase of Haarmann & Reimer in 2002 from Bayer was then pushed out from a shell company in Luxembourg to reduce tax in seven countries.
Symrise’s Mexican subsidiary bore the brunt of the debt, burdened with €125m, and tax authorities were alarmed when a profitable and tax paying company became loss making overnight. The claimants argue that Baker & McKenzie is liable for the £11.2m then paid to the Mexican authorities, contending that ‘no reasonably competent Mexican tax adviser’ would have drafted an intercompany loan agreement that ‘entitled the Mexican tax authorities to re-characterise the payments made under it as dividends (and so subject to tax)’.
However, Baker & McKenzie said the companies are the ‘architects of the misfortune that they now find themselves in’. The firm argues that ‘resisting a challenge from the tax authorities was part and parcel of an aggressive tax mitigation strategy’ and that the tax bill is a result of Symrise ‘capitulating in proceedings’.
The London entity of Baker & McKenzie, which led the advice, is also ‘denying responsibility for the accuracy of the foreign law tax advice given by Baker & McKenzie Mexico’.
It added: ‘Baker & McKenzie London is not prepared to stand as guarantor or indemnifier for the accuracy of the answers it obtained from others in the tax due diligence exercise in the foreign jurisdictions.’
This argument comes despite an engagement letter from then head of corporate Bernd Ratzke which said he will lead the restructuring and ‘have the responsibility for the service which we provide to you globally in connection with that exercise’.
Symrise contends that ‘Baker & McKenzie was presenting itself as part of a single organisation which would provide a comprehensive, worldwide service to its client including tax advice’.
It alleges that Baker & McKenzie’s London office failed to secure advice from their Mexican colleagues before executing the loan agreement and has produced an email stream between two London solicitors as evidence of that.
Symrise is also claiming £500,000 for expenses, including £46,000 it paid for advice from Baker & McKenzie in Mexico and the £122,000 it paid the firm in London.
A spokesperson at Baker & McKenzie said: ‘This claim relates to certain aspects in Mexico of a cross border M&A transaction, which was undertaken more than 12 years ago and involved debt push-down and post acquisition restructuring across 15 jurisdictions. We have full confidence in our work and believe we have a complete defence to the allegations. We will defend our position vigorously and have the full backing of our insurers. As the trial of the claim is currently in progress it would not be appropriate for us to comment further at this stage.’
Baker & McKenzie is represented by Triton Global director Michael Robin, who has instructed Lawrence Cohen QC of Wilberforce Chambers, while Symrise is represented by Holman Fenwick Willan partner David Robinson, who has instructed William Godwin of 3 Hare Court.