Tax Executives Institute, Inc.
Kalamazoo Chapter
International M&A –
Tax Issues in Third Party Transactions
Jonathan Stevens, Baker & McKenzie New York
Thursday, March 17, 2011
Your Trusted Tax Counsel®
Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional
service organizations, reference within the organization to a “partner” means a person who is a partner, or equivalent, in a member firm or its affiliate.
Similarly, reference to an “office” means an office of any such law firm.
What is the tax department role in the transaction?
– Deal structure
– Asset sale v. stock sale
– Taxable or tax-free
– Due diligence
– Not just an issue for Buyers
– Negotiating provisions in the Agreement
– Pre-Closing Restructuring
– Post-Acquisition Integration
©2011 Baker & McKenzie
2
Taxable Asset Purchase
– Key Seller tax issues
– Identification of assets to be sold by seller
– Tax cost to seller (direct (i.e. income tax) and indirect (i.e.
sales tax, transfer taxes and VAT))
– Obtaining requisite clearances for exemptions
– Key Buyer tax issues
– Encumbrances (charges, attachments, levies, etc.) on
acquired assets
– Tax cost to buyer (indirect (sales tax, transfer taxes and
VAT))
– Depreciation of purchased assets
©2011 Baker & McKenzie
3
Taxable Asset Purchase
– Asset Purchase Agreement
– Can be less complicated than stock purchase agreement from a tax
perspective
– Tax provisions subject to most negotiation
– Transfer taxes
– Often there is compromise to split 50-50.
– Purchase Price Allocation
– Seller will generally want to control allocation by selling entity.
– Buyer will generally want to control allocation by type of asset.
– Non-market representations
©2011 Baker & McKenzie
4
Taxable Asset Purchase
– Asset Purchase Agreement
– Key Contract Terms
– VAT and Indirect Taxes
– Need to know on which party bears legal liability for tax
– Withholding provisions
– Impact of milestone payments/earn-outs
– Impact of buyer and seller location
– Closing deliverables
– FIRPTA Certificate.
– Form W-9 or W-8.
– Local tax clearance certificates
– Employment Earnouts
©2011 Baker & McKenzie
5
Stock Purchase
– Taxable Transaction v. Tax-free Transaction
– Form of Transaction
– Straight stock purchase
– Stock purchase via merger
– Type of Target
– Publicly held company
– Privately held company
– Subsidiary of publicly held company
©2011 Baker & McKenzie
6
Taxable Stock Purchase
– Acquisition of publicly traded company
– Role of due diligence
– Squeeze-out mechanisms
– Stock Purchase Agreement
– Key contract terms
– Representations and warranties
– Covenants (actions of Target between signing and closing)
– Closing deliverables
– Ancillary documents
– Tender offer
– Broker letters to clients etc.
©2011 Baker & McKenzie
7
Taxable Stock Purchase
– Acquisition of privately held company
– Role of due diligence
– Stock Purchase Agreement
– Key contract terms
– Indemnification provisions
– Survival
– Caps and deductibles
– Escrow arrangements
– Representations and warranties
– Disclosure schedules
– Covenants (actions of target between signing and closing)
– Closing deliverables
– Non-compete clause
– Section 338 elections
– Post-closing tax actions (including for straddle period)
– Filing of tax returns
– Tax elections
©2011 Baker & McKenzie
– Audits
8
Taxable Stock Purchase
– Acquisition of subsidiary of publicly traded company
– Role of due diligence
– May have some issues obtaining information if agreement is between
competitors.
– Stock Purchase Agreement
– Key contract terms
– Indemnification provisions
– Generally same issues that exist in purchase from privately held
company, however generally more comfort re: collectability
– Representations and warranties
– Covenants (actions of target between signing and closing)
– Closing deliverables
– Post-closing tax actions (including for straddle period)
– Filing of tax returns
– Tax elections
– Elections may be subject to additional negotiation if buyer and seller are
U.S. taxpayers.
– Sharing of information
– Audits
©2011 Baker & McKenzie
9
Special Considerations
– Use of tax attributes (losses, credits)
– Sale of partnerships
– Joint ventures
– Funding the purchase
– Filing of Uncertain Tax Position (“UTP”) statement
– No two transactions are alike!
©2011 Baker & McKenzie
10
Thank You
Pursuant to requirements relating to practice before the Internal Revenue Service, any tax
advice in this communication (including any attachments) is not intended to be used, and
cannot be used, for the purpose of (i) avoiding penalties imposed under the United States
Internal Revenue Code, or (ii) promoting, marketing, or recommending to another person any tax-related matter.
Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common
terminology used in professional service organizations, reference within the organization to a “partner” means a person who is a
partner, or equivalent, in a member firm or its affiliate. Similarly, reference to an “office” means an office of any such law firm.
©2011 Baker & McKenzie
11