Controlling Tax Risks In Overseas Mergers And Acquisitions

< p > Chinese enterprises will face many risks in overseas mergers and acquisitions. Among them, tax risks are more complex and diverse. On this issue, the reporter interviewed PWC China overseas investment advisory service and Huang Fucheng, partner of China international taxation service.

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< p > < strong > reporter: what are the main duties of the tax due diligence for the purchaser? < /strong > < /p >

< p > Huang Fucheng: to be specific, first of all, we should check whether the tax declaration of Target Corp (acquired enterprises) is accurate and complete, that is, checking compliance.

Incomplete or inaccurate tax declarations may be fined in the future and affect the value of the company.

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< p > furthermore, it is necessary to analyze whether Target Corp's tax planning is compliance and how risky it is.

Take an example, for example, a Chinese company wants to acquire a foreign company. The foreign trade platform of the foreign company is located in a country with low income tax rate. The tax rate in this country is far lower than that in China 25%, the United States 35% and Australia 30%.

In the case of the low overall tax rate of Target Corp, it is necessary to have a detailed analysis of whether the acquirer has sufficient commercial essence in the low tax rate country.

If the local commercial essence is not enough, it may cause potential tax risks to Chinese enterprises after the acquisition.

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< p > secondly, it is necessary to analyze the details of the related party pactions within the acquirer.

For example, the acquirers set up production enterprises in China and a low tax country, because the tax rate in the low tax countries is cheaper than that in the mainland of China. If the profits of Chinese companies are lowered by the buyers, the profits of the low tax countries will be raised so that the profits of the low tax countries will be better, so as to achieve the purpose of lightening the tax burden.

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< p > such improper internal related party pactions are likely to bring potential tax risks to the acquirers in the future.

When a Chinese company bought a foreign company, their tax due diligence did not carefully analyze the related party pactions of Target Corp.

After the completion of the purchase, the local tax bureau issued a huge ticket.

After the incident, the two sides' tax bureaus started the process of mutual consultation. Under the coordination of the State Administration of Taxation, the amount of fines has finally decreased a lot.

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< p > again, it is necessary to analyze whether the tax preference enjoyed by the buyer before the acquisition can continue until the completion of the acquisition.

Because in some countries, some tax preferences do not automatically shift along with the changes in equity pactions, but also consider whether these tax preferences will be expired or canceled.

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P > in addition, if the purchaser has a tax loss, it is necessary to check the provisions of the local tax authorities and whether the tax losses before the acquisition can also be charged to the taxable income after the acquisition.

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< p > tax due diligence also plays an important role in assisting a href= "//www.sjfzxm.com/news/index_c.asp" > acquirer < /a > for the negotiation of purchase pricing.

Based on the results of due diligence, if the acquirer discovers potential tax risks, it may be subject to inspection by the tax authorities in the future. It is necessary to adjust the price or seek protection in the payment means acquisition agreement to deal with such tax risks.

For example, the original purchase price is $1 billion, but the tax bureau may pay a fine of $100 million because the buyer has the risk of tax inspection, so the purchaser can only pay 9 hundred million to the seller.

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In the < a href= "//www.sjfzxm.com/news/index_c.asp" > tax /a > due diligence investigation, if P is found, if there is a significant risk, the so-called "Deal Breaker" may also terminate the M & a paction.

In the past, there was also a case that Chinese enterprises abandoned the acquisition because of the large tax and financial risks of overseas acquisitions.

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< p > < strong > reporter: Chinese enterprises < a href= "//www.sjfzxm.com/news/index_c.asp" > overseas merger and acquisition < /a > involving asset acquisition and equity merger and acquisition. What are the tax risks that deserve attention? < /strong > /p >

< p > Huang Fucheng: Chinese enterprises' overseas mergers and acquisitions should depend on their own strategy, the relevant laws and regulations of the acquirer, and the relevant taxes and fees to decide whether to purchase assets or purchase equity.

In terms of taxes and fees involved, in general, the taxes and fees involved in buying shares are less than those purchased.

When assets are traded, buyers and sellers may pay more taxes. In equity trading, although the expenditure on taxes and fees may be less than that of the former, the buyer assumes the potential tax risk in the Target Corp history.

This requires the buyer to make strategic trade-offs. The acquirer is hoping to buy a "clean" and relatively less risky asset, or to pay less taxes and shares in the paction, but to undertake historical risks.

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< p > at the same time, in the time of equity trading, if the acquirer has a long holding chain and at which level to conduct M & A pactions, for both sides of the merger, the tax payable is quite different. The buyer needs to analyze the advantages and disadvantages of the paction under different levels of holding structure, and then make a decision.

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< p > in addition, from the perspective of Chinese buyers, we should not only analyze the controlling chain of the acquirers, but also need to do a good job in designing the tax holding framework for the main body of the purchase so as to plan ahead for the future tax burden to be sold, listed or introduced into the strategic investors.

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