The structure of the acquisition is crucial in optimising tax planning around the transaction. The vendor and purchaser can have different objectives in this regard with some having a preference for a share sale over an asset sale or vice versa, depending on the facts of the case.
In broad terms, where the business being sold is part of a company, this can be sold by way of transfer of the shares in the company. In doing so the purchaser takes on the company’s history, contracts with employees/suppliers/customers, potential tax liabilities and so forth. As an alternative the business can be sold by way of an asset sale, where the purchaser can select which parts of the business they wish to acquire.
Some of the advantages to a share sale are as follows:
An asset sale would also have a number of advantages:
An important aspect of any share sale is the due diligence report. The chief purpose behind this review is to allow the purchaser to review the tax profile of the company and to identify any potential exposure. This can then drive further discussions on the sale price, in the event that a provision is necessary for tax payable. In addition following this review we can assist with the drafting of the tax deed of indemnity. This can afford some protection to a purchaser for tax liabilities over and above those disclosed by the vendor, and also for a tax liability in excess of that provided for in the accounts up to the date of sale, or which arises outside of the ordinary course of business.
Lastly, an issue that has to be considered in a share sale is whether it is necessary to obtain clearance from Revenue prior to the consideration passing. There is a requirement that where the consideration exceeds €500,000 and the shares derive greater than 50% of their value from certain specified assets (which includes land situated in the State), then the purchaser must retain 15% of the consideration and pay this over to Revenue unless they obtain a CG50 clearance certificate from Revenue before closing. It is important that this requirement is considered at an advanced stage.
As can be seen from the above, there are many areas in which OSK Tax Consultants can be of assistance to a prospective purchaser from a tax perspective.
Niall Dempsey is Tax Director in OSK. OSK Tax advisors Dublin offer tax planning advice including mergers, acquisitions and due diligence.
The above is intended as a brief summary of some of the tax issues which need to be considered from the purchasers perspective. It is important that detailed advice be obtained in the course of an acquisition.
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