TFI Focus

The biggest German trade fair company by turnover and the world’s largest trade fair centre have brought their controversial cross-border leasing arrangements to a premature end.

Messe Frankfurt recently terminated its cross-border leasing contract with a US investor and the participating banks by mutual agreement. Concluded in the year 2000, the contract benefited the company to the tune of over 15 million euros in total – not counting the interest payments saved over a period of 12 years. “The termination of the cross-border leasing contracts will make it easier for us to proceed with developing the trade fair centre,” explains Messe Frankfurt Chairman Wolfgang Marzin: “It gives us complete flexibility again.” The risks and trade restrictions feared by critics have not materialised. The US business partner was constructive and cooperative in relation to all relevant developments throughout the years of the contract, according to Marzin, who also emphasises how good the US partner’s credit ratings were at the time the contract was concluded. They were such that even at the height of the financial crisis there was no need for action. However, the current economic situation, interest rate developments and the credit ratings of the parties involved combined to present a favourable opportunity to bring the relationship to a profitable conclusion (www.messefrankfurt.com).  

Last summer, Hanover-based Deutsche Messe became the first trade fair company in Germany to pull out of cross-border leasing entirely. “It puts us back in sole control of all the halls at our trade fair centre,” says Deutsche Messe Chairman Wolfram von Fritsch. Over ten years ago, the company included the majority of its halls in this financial arrangement. This risky tax-evading model was used by a large number of German companies and local authorities at the time. With a transaction volume of almost a billion US dollars, it was one of the largest cross-border leasing deals in Germany.

Under the terms of the cross-border leasing arrangements, American investors took over the exhibition halls, and at the same time the companies concluded long-term leasing contracts for them. Both the American investors and the German companies and local authorities gained tax advantages from the arrangement. However, when the American tax legislation was amended a number of years ago, the arrangement lost its attractions to US investors. At the same time, the German companies involved in cross-border contracts were exposed to greater risks as a result of the financial crisis. In addition, they had less freedom to make changes to their trade fair centres, and that was also true in Hanover, the world’s largest trade fair centre. A prominent example was the huge, 42-year-old CeBIT hall, with its 70,000 square metres or so of exhibition space. The risk that the US investors could gain control of the site was also always there in the background. Now, however, the Hanover company is secure again, and the exit from the arrangement was sweetened by the financial picture. All in all, the scheme saved around 25 million euros in taxes (www.messe.de).

This article was published in TFI issue 3-4/2012