Tax consequences of transactions

In most deals the tax is settled last, after the price has been agreed and the drafting has begun. By then the commercial terms rest on an outcome that nobody has checked: that the seller keeps what the buyer pays, that the buyer can write off what it bought, that the losses in the target will still be there next year. When one of those assumptions fails, it usually fails after completion, and the cost falls on whichever party the contract happens to leave holding it.

The same economic result can be reached by different routes, and each route is taxed differently for each side of the table. Looking at the tax early changes what is bought, how it is paid for and what the contract has to say:

• the rules on how a sale of shares and a sale of assets are taxed, for the seller and for the buyer;
• the rules on capital gains, and on the exemptions, reliefs and deferrals that may reduce them;
• the rules on allocating the price between goodwill, property and other assets, and on what may be depreciated afterwards;
• the rules on tax losses and credits, and on whether they survive a change of ownership;
• the rules on registration and transfer duties, and on value added tax, when a business or a building changes hands;
• the rules on tax warranties and indemnities, and on which party bears the tax of the years before completion;
• the rules on interest paid on acquisition debt, and on setting it against the profits of the business acquired;
• the rules on how earn-outs, deferred consideration and payments to managers who sell alongside the owners are taxed.

Our lawyers can support you with this.