M&A Tax Advisory Services
Deep technical skills and practical M&A experience are essential in guiding strategic and financial buyers to achieve their goals in today’s rapidly changing markets. To respond accurately and quickly to the needs of these clients, our professionals in the field of M&A will provide M&A tax services.
- Phase1: Strategic M&A tax advice
- Phase2: High-level M&A tax advice on a specific transaction
- Phase3: Tax due diligence and analysis of structuring proposals
- Phase4: M&A and post M&A tax advice
- Related topics
Phase1: Strategic M&A tax advice
• Analysis of tax effects on corporate business strategy
• Strategic tax advice on M&A taxation
Analysis of tax issues relevant to the target company, seller, buyer and other M&A transaction parties represents a key element in assessing overall feasibility and post-reorganization cash flows.
For example, the tax regime regarding corporate reorganization provides the classifications of “qualified” and “non-qualified” transaction regarding M&A transactions, corporate divisions, contributions in kind, distributions in kind, share-for-share exchanges and share transfers. If a reorganization meets certain conditions, realized gains are not subject to any immediate taxation. On the other hand, if the tax-free reorganization occurs within a single corporate group,
the use of net operating losses and built-in-losses on certain assets may be subject to limitations. In a reorganization that does not qualify for tax-free treatment, as a general rule, taxable gains as well as deemed dividends may arise. Failure to qualify for tax-free treatment may, under certain circumstances, jeopardize the feasibility of the transaction. As a result, it is essential to analyze the tax impact for the relevant parties and, where necessary, consider structuring alternatives.
Following the introduction of 100% group taxation rules, special attention should be paid to the tax implications of transactions within a 100% group.
Phase2: High-level M&A tax advice on a specific transaction
• Tax structuring advice
• Tax advice on business valuation
• International tax advice on cross-border transactions
The tax structuring objectives of the seller and the buyer may greatly differ in regard to the reorganization itself and the post reorganization integration. For example, while a tax-free reorganization is in many cases optimal from the perspective of the seller, the buyer and target may find that a tax-free reorganization is less favorable, inasmuch as it may adversely affect net operating losses and built-in-losses as well as increase the tax burden on future profits. The same tradeoffs may apply to a reorganization within a group, and thus careful planning is required even for intra-group reorganizations. In the advanced stages of the transaction, business valuation may become necessary, in the appraisal of shares for tax purposes or otherwise.
In cross-border transactions, it is essential to take into account potential tax benefits under tax treaties, foreign tax credit, thin capitalization, and controlled foreign companies rules. For example, if the buyer obtains acquisition debt in Japan and the cash flows from the acquired business are generated outside Japan, it is important to establish a structure that anticipates and minimizes the tax cost of cash repatriation.
Phase3: Tax due diligence and analysis of structuring proposals
• Analysis of tax risks of the target company
• Update of structuring proposals and analysis of alternative solutions
• Review of sale agreement, etc.
Tax due diligence plays a critical role in detecting potential tax risks in the target company so that any countermeasures available to mitigate such exposures can be timely implemented. The tax analysis of the target company should not be limited to a review of the tax returns. A comprehensive analysis of the tax attributes of the company needs to be carried out, including the taxation status, business flows, ownership of the organization (public or private), location, industry, etc. Tax risks identified in the course of the tax due diligence may also be a significant consideration in negotiating provisions of the sale and purchase agreement (price adjustments, representations and warranties of the seller, etc.), as well as in the review of structuring plans.
Phase4: M&A and post M&A tax advice
• Advice on reorganization
• Advice on tax consolidation rules
• Advice on exit strategy
Following the M&A transaction, internal restructuring or an election to file a consolidated income tax return is often used to achieve a more tax efficient structure. There are initial tax costs on establishing a consolidated group: subsidiaries may need to mark to market certain assets on entry, recognize any built-in gain or loss and pay any applicable tax. Furthermore, net operating losses incurred by any subsidiary before entry into the consolidated group cannot generally be carried forward for use within the consolidated group.
Exit strategies are an important consideration, particularly for financial buyers. Modeling alternatives for the disposal of their portfolio companies taking into account likely tax costs is indispensable for financial buyers to assess the return from their investment.