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Taxes in M&A transactions

Germany

You are planning to buy or sell a company, would like to merge or set up a joint venture? The challenges and measures which need to be considered in order for your M&A project to be successful are as diverse and complex as your strategic and economic goals – this is especially true from a tax perspective.

Experience shows that a valid tax concept is an essential component of every successful M&A transaction. This is why at CMS our transaction advice places particular emphasis on this. Our M&A tax experts will assist you throughout the entire transaction process and keep the aspects relevant from a tax perspective firmly in their sights at all times. It is our common goal to develop the best possible tax solution for your expansion, consolidation or cooperation project, regardless of whether this is on the side of the buyer or of the seller.

In close cooperation with CMS experts from the fields of Corporate/M&A, Banking & Finance, Competition, Commercial, IP, IT/Data Protection and Employment our experienced M&A tax team will assist you through all phases of the transaction and beyond:

  1. Preparatory phase
  2. Transaction phase
  3. Integration phase (post-merger integration)

Tax-optimised in every phase of the deal

Deal Structuring / Deal Design

From preparation through the actual transaction phase to post-merger integration and tax claim management, our M&A tax team will provide you with comprehensive assistance:

Preparatory phase

Tax considerations already play a significant role in the run-up to any transaction. Forward-looking and individual tax planning is crucial from the outset. Our M&A tax experts will assist you from day 1 and help you to avoid unnecessary friction and unpleasant surprises from a tax perspective during the course of the deal.

Our service for you includes:

  • Advising on and implementing preparatory measures in the run-up to a company acquisition/sale (tax-neutral restructuring, carve-outs, carve-ins)
  • Conducting vendor tax due diligence; preparing tax fact books
  • Providing tax advice and coordinating in connection with Stapled Warranty and Indemnity (W&I) insurance policies (seller flip-over buyer policies)

Transaction phase

Tax due diligence

One of the significant factors in the transaction phase which is critical to the success of the deal is often the tax due diligence. Depending on your perspective, we usually conduct this as a classic buy-side due diligence including risk assessment and preparation of the report. Depending on the transaction, different levels of detail of due diligence (red flag or full fledge) are possible.

If you are buying a company, it may make sense to conduct post-closing due diligence after the transaction phase has been completed in order to optimally prepare for the integration of and to integrate the target company. Ideally, however, the course should already be set for the tax integration process before the integration phase commences.

Kaufvertragsverhandlung

Tax-optimised deal design

The topic of taxation also influences the actual deal design or deal structuring in the transaction phase. With their many years of experience in tax structuring advice, our M&A tax experts pay particular attention to the following matters for you during this phase:

  • Choosing the transaction form (share deal v asset deal)
  • Identifying the optimal holding and acquisition structure including
    • company formations, equity and debt financing, hybrid financing and refinancing, vendor loans
    • participation of co-investors
    • structuring of real or virtual management participation programmes
    • tax and balance sheet consolidation
    • preserving advantageous tax attributes (loss carry-forwards, R&D funding)
  • Avoidance/optimisation of transaction taxes 
  • Tax optimisation after acquiring a company
    • deduction of transaction costs (operating expenses and input tax deduction)
    • tax consolidation, e.g. through tax groups or merger of acquisition and target company or collapse merger of partnerships
    • repatriation of current income, exit taxation issues
    • deduction of financing costs from acquisition loans
    • utilisation of losses carried forward
    • consideration of any restructuring measures/balance sheet adjustments which may be necessary, advice in the special case of distressed M&A

Coordinating agreements on the basis of tax aspects

Last but not least, tax aspects also play a significant role in the drafting of the company purchase agreement (sale and purchase agreement or asset purchase agreement). The same applies to the shareholder agreement if several investors are involved.

The CMS M&A tax team experts will advise you on the contractual negotiations with the buyer or seller and keep the tax implications firmly in their sights. The main points to remember are: Every good SPA/APA takes taxes into account; a very good SPA/APA is also adapted to the individual case and optimally tailored to your needs.

We will assist you with your contractual negotiations, especially with the following:

  • Tax aspects of purchase price structuring in locked box or closing accounts procedures and structuring of earn-outs and vendor loans
  • Tax clauses based on the individual case and individually-tailored tax clauses
  • Taking account of all tax consequences relating to signing, closing and the effective date
  • Structuring of tax-neutral roll-overs in the case of re-investments, structuring of a tax-efficient exit in multi-level investment chains as well as specifications for future structuring

Integration phase (post-merger integration)

The deal is completed with the closing. However, the challenge of the transaction does not end there by any means. This is because whether the transaction has the expected success regularly only becomes apparent after the merger or takeover has taken place or the joint venture has been established. The integration phase therefore deserves special attention, also from a tax perspective. 

Our M&A tax experts are familiar with the special challenges of the final phase of the transaction and will assist you comprehensively with integrating the target company in a tax-optimised manner. Our focus is on all questions concerning:

  • planning, choosing and implementing the tax-optimal integration structure (e.g. through mergers, demergers, liquidations, transfers of IP and parts of businesses, collapse mergers, etc.)
  • taking account of the financing expenses from a tax perspective
  • consolidating results and tax groups
  • (re-)structuring corporate governance and taxation issues
  • integrating the target company into your tax compliance system and combining existing compliance systems and
  • post-M&A tax claim management
  • tax optimisation of matrix structures

Further information on post-merger integration and our comprehensive PMI advisory services can be found here.

You have questions about our M&A tax services? Please feel free to contact our transactional tax lawyers at any time.

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