The closing marks the end of a successful acquisition process, but not the end of the challenge of the deal itself. Expectations of a corporate transaction often only become apparent after the takeover, merger or joint venture has been completed.
The phase of post-merger integration (PMI) is therefore the decisive one in numerous M&A projects. In order for the integration of the target company to be optimally successful, the right course must be set at an early stage, also from a tax perspective.
CMS' M&A/PMI tax experts are your reliable advisors when it comes to all questions of post-merger integration. In every phase of the transaction, they have the tax pa-rameters in their sights which will later be important in the post-closing period.
Planning and choosing the optimal tax integration structure
One of the first steps in M&A projects is often the tax due diligence. The tax due dili-gence does not only have a significant influence on the deal structure, but also on choosing an optimal tax structure in the context of post-merger integration. This is because due diligence can provide valuable tax information and insights at an early stage of the transaction. Tax considerations of integration measures, e.g. simplifica-tion of the corporate structure after closing, are determined in practice in an early stage by means of a tax structure paper. This also applies, of course, even where no due diligence is carried out.
Our tax experts will assist you to individually plan a tax-optimal integration structure which takes account of the following aspects, among others:
- Tax-optimised profit and loss consolidation (especially debt push-down, e.g. implementation of tax groups, merger of acquisition and target company, con-version of dividend claims)
- Tax-efficient repatriation of liquidity across the border (in-bound and out-bound with withholding tax optimisation through shareholder loans, share buy-back, in-termediate holdings, change of legal form or transfer of registered office)
- Tax-efficient exit taking into account a partly diverse shareholder structure and tax structuring issues in the case of a lower-tier exit
- Integration into the reporting and compliance systems and guidelines (system integration) of the acquirer, e.g. adjustment of transfer prices (arm's length analyses, conclusion of intra-group agreements/APAs)
- Integration into the corporate structures (legal integration) of the acquirer and reduction of legal entities through merger, demerger, accrual or liquidation
- Addressing special tax indicators in due time, e.g. when acquiring companies in need of restructuring under all aspects of distressed M&A
- Tax consideration of matrix structures, e.g. in the case of cross-border restruc-turings and/or consolidations also in the area of personnel / management
Tax consideration of financing expenses
In any M&A project, it is important to keep an eye on the costs of the transaction. Our tax experts will advise you, for example, on offsetting transaction and financing costs by setting up debt push-down structures through tax groups, mergers or distributions. They will also ensure that the input tax deduction on transaction-related advisory costs (e.g. through intra-group service relationships) is maintained.
Consolidation of results as a tax factor – tax groups
Often the target company is purchased out of an existing tax group. If profit and loss transfer agreements are in place, the question arises, at the latest when preparing the post-merger integration, of whether the tax group can be terminated or continued in a way which is not detrimental from a tax perspective.
Our tax experts will assist you with all tax aspects of the tax group, including:
- Continuation of existing control and profit transfer agreements with the new controlling company after legal integration
- Integration of entities in legal terms (e.g. merger of the controlling company)
- Tax efficient remediation of accounting errors in order to ensure a proper im-plementation of the profit and loss transfer agreement in the past
- Termination of profit and loss transfer agreements in a way which is not detri-mental from a tax perspective
- Establishing new tax groups for income tax and/or value added tax purposes
(Re-)structuring of corporate governance and taxation issues
A change of shareholder is often accompanied by changes in corporate governance. In many cases the remuneration structures then need to be and are to be adapted, e.g. by allowing existing and new employees to participate in the company's success, including the target company, in a tax-optimised manner. It is necessary to prevent undesirable tax consequences as far as possible.
Our tax experts will advise you on
- Avoiding unintentionally relocating the place of management and establishing dependent agent permanent establishments (e.g. matrix structures);
- Appointing of management and supervisory bodies (including design of remu-neration packages e.g. related to pre-tax ratios/EBITDA)
- Implementing employee participation schemes at different levels, e.g. option programmes for C and deputy levels, virtual programmes for middle manage-ent
Integration of the target company into your tax compliance system
Proper tax compliance plays an important role for companies both nationally and in-ternationally. The practical relevance of effective tax compliance has increased again, not least because the tax authorities are analysing facts more and more closely and in some cases companies face drastic consequences if they make mistakes. The inte-gration of a target company therefore also requires careful consideration with regard to tax compliance.
Our tax experts will assist you from an early stage with
- Integrating (the target company) into the existing tax compliance system or combining the tax compliance systems
- Reviewing the tax compliance situation of the target company (post-M&A due diligence), especially where there is no or only rudimentary pre-deal due dili-gence
- Taking account of and integrating the (pre- or post) tax due diligence findings into the (future) tax compliance system
- Analysing the potential effects on the preparation of the opening balance sheet with regard to tax positions and by
- Respecting tax notification and lock-up periods
- Analysing and providing advice in connection with notification requirements for cross-border tax arrangements
Post-closing tax claim management
The proper allocation of taxes of the target company to periods before and after the (economic) effective date of the transaction can have a significant influence. To pro-tect you effectively against a subsequent imbalance between the purchase price and the enterprise value, e.g. due to additional tax payments following a tax audit, our tax experts will assist you to identify claims, to classify them correctly and to assert them or defend against them. In order to do this the SPA provisions must be aligned with the factual situation and the acquirer's administration.
Our post-closing tax claim management services include:
- Preparing customised overviews on the basis of the share purchase agreement
- Assisting with setting up an efficient internal process for identifying and as-sessing potential claims for compensation and indemnification as well as im-plementing notification and cooperation duties in a timely manner
- Assisting with asserting and defending against contractual claims
- Coordinating tax audits taking account of the participation rights and duties in the share purchase agreement
You need qualified advice on this extremely complex matter? If you have any ques-tions concerning preparing the post-merger integration in a tax-optimised manner and the advice we provide on this, please do not hesitate to contact our tax lawyers.