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M&A Book 2002* MERGERS1 & ACQUISITIONS ASIANMERGERS & TAXATION ACQUISITIONS ASIAN GUIDE TAXATION GUIDE 2002 AUSTRALIA CHINA HONG KONG INDIAINDONESIA JAPAN KOREA MALAYSIA NEW ZEALAND PHILIPPINES 118SINGAPORE SRI LANKA TAIWAN THAILANDVIETNAM GLOBAL M&A CONTACTS 2 MERGERS & ACQUISITIONS ASIAN TAXATION GUIDE FOREWORD The year 2001 was a dismal period for the mergers and acquisitions (M&A) scene in Asia. The global economic downturn has affected M&A activities in the region. Based on figures released by Thomson Financial, announced M&A transactions in the Asia Pacific fell by a hefty 39.1 per cent to US$141.3 billion in 2001, compared with US$231.9 billion in 2000. However, a number of developments are expected to have a positive impact on the Asian M&A landscape in 2002. Chief among these are the upbeat economic outlook in the United States and the region, and China’s entry into the World Trade Organisation. Also helpful are the continued corporate and financial sector reforms in many parts of Asia, including Japan, Korea and Malaysia; consolidation in the Hong Kong wireless telecom sector; and the increasing focus on enhancing shareholder value. Yet M&A transactions remain a risky business, particularly those involving cross-border deals where regulatory issues could make or break a deal. Research shows that one out of every two M&A deals delivers disappointing results, either because of the failure to enhance corporate performance, or market position, or shareholder value Taxes can play a large part in adding value to the deal if managed properly, and conversely, destroy a deal if not handled with care. Proper planning can, for instance, help the parties involved take advantage of available tax concessions. The tax regulations and practices in Asia may be complex, even to tax generalists practising in the region, not to mention investors from outside Asia. This book outlines some of the major taxation issues that purchasers and sellers will need to consider before embarking on an M&A deal in Asia. This is the second edition of the Guide and is available for the first time in CD-rom format. An expanded list of countries is covered in this Guide, containing information from 14 countries (compared with 12 in the previous Guide). Also included in this guide are the PricewaterhouseCoopers contacts in Asia, Europe and America who can assist you with your deal wherever you or your target may be located. Our tax consultants are deal architects who can help you add value to the deal. They will participate in the whole M&A process starting with pre-deal negotiation, due diligence, tax structuring and post-merger integration. Our aim is not only to assist our client to identify and manage the risks involved in the acquisition, but more importantly, to assist the client to identify and capitalise on the opportunities. David Toh Asian Leader for M&A Tax Services PricewaterhouseCoopers AUSTRALIA CHINA HONG KONG INDIAINDONESIA JAPAN KOREA MALAYSIA NEW ZEALAND PHILIPPINES 118SINGAPORE SRI LANKA TAIWAN THAILANDVIETNAM GLOBAL M&A CONTACTS 3 MERGERS & ACQUISITIONS ASIAN TAXATION GUIDE MERGERS & ACQUISITIONS ASIAN TAXATION GUIDE 2002 CONTENTS Post Deal Integration 04 Australia 06 China 20 Hong Kong 32 India 39 Indonesia 51 Japan 63 Korea 83 Malaysia 95 New Zealand 107 Philippines 118 Singapore 132 Sri Lanka 145 Taiwan 157 Thailand 169 Vietnam 180 Global M&A Contacts 192 AUSTRALIA CHINA HONG KONG INDIAINDONESIA JAPAN KOREA MALAYSIA NEW ZEALAND PHILIPPINES 118SINGAPORE SRI LANKA TAIWAN THAILANDVIETNAM GLOBAL M&A CONTACTS 4 MERGERS & ACQUISITIONS ASIAN TAXATION GUIDE POST DEAL INTEGRATION™ (PDI) An important factor in the success of a deal, be it a merger, acquisition or buyout, is the prompt implementation of the business strategy immediately after the transaction is sealed. However, this process is often chaotic, with groups often losing control of their tax position. A failure to align tax strategy with business strategy and a lack of clear decision-making on tax issues will delay successful integration and will mean missed opportunities for optimising the group’s tax position. PricewaterhouseCoopers’ global M&A specialists have developed a methodology called Post Deal Integration (PDI) to assist our clients in overcoming these problems. Risks and opportunities There are a number of integration risks that may result from a deal. Tax costs may arise when business structures are being reorganised. These could be caused by the transfer of taxable values between entities or countries, or through the loss of tax attributes such as deduction for losses. Risks can also arise from the lack of information, the disruption of processes and unclear decision making. These need to be recognised and managed. PwC’s PDITM approach can help organisations to avoid such pitfalls, and maximise the tax advantages of a deal through identifying important tax issues, prioritising them and mapping out a focused workplan to implement various projects. Indeed, mergers and acquisitions create unique opportunities for tax structuring and optimising the enlarged group’s tax profile. Solutions that would be intrusive for an existing business will be less so when a new organisation is created. A key opportunity is created by the existence of a commercial rationale for any tax restructuring. PDI can help organisations to address conflicting approaches of the legacy groups of companies, for, no matter how effective the tax strategies were for the groups prior to their merger, these are almost certain to be inappropriate for the new combined group. PwC Approach PDI is a systematic, robust process to capture quickly the best solutions at the crucial period immediately after a deal is sealed by delivering focused output in the first weeks of integration. AUSTRALIA CHINA HONG KONG INDIAINDONESIA JAPAN KOREA MALAYSIA NEW ZEALAND PHILIPPINES 118SINGAPORE SRI LANKA TAIWAN THAILANDVIETNAM GLOBAL M&A CONTACTS 5 MERGERS & ACQUISITIONS ASIAN TAXATION GUIDE The key stages are diagrammatically illustrated below. Post Deal Integration: Overall approach Information Gathering Decision Making Implementation Commercial Projects Preliminary Kick-Off Tax Brainstorming Workplan Planning Meeting Briefing Tax Projects Consensus Commercial Understanding Identify key DELIVERABLES on goals briefing; and priority areas consensus formulating and related Project on the tax tax issues workplans commercial strategy rationale This approach ensures that the relevant information is gathered, and priorities and values are identified. The prioritisation will consider both the risks and cost vis-a-vis financial rewards. The final stage is to deliver a focused workplan. The outcome from the work plan will be various tax saving measures to be implemented along- side the business and management integration. The process is scaleable depending on the complexity and the size of the deal. Where a robust process is in place, the chances of success increase. Past researches have shown the most common mistake made in the deal environment is lack of implementation. Our proven process helps avoid this and therefore adds value. PDI can assist the enlarged group to • maintain control of key tax areas during the transitional period, hence reducing tax risk; • focus resources on quick wins, bringing immediate tax benefits and key strategic changes which have a major impact on the group effective tax rate; • develop a longer term tax strategy which takes advantage of business change to optimise the group tax position over the medium term; and • ensure that tax strategies contribute to the success of the deal. The success of a deal does not end with the signing of the sale and purchase agreement. It is judged by the value that can be harvested from the enlarged group. Tax savings can contribute significant to the after-tax profit and thus impact greatly on shareholder value. Our PDI team, working closely with the post-deal services team from our Transaction Services unit, can help a merged group achieve such important milestone. AUSTRALIA CHINA HONG KONG INDIAINDONESIA JAPAN KOREA MALAYSIA NEW ZEALAND PHILIPPINES 118SINGAPORE SRI LANKA TAIWAN THAILANDVIETNAM GLOBAL M&A CONTACTS 6 MERGERS & ACQUISITIONS ASIAN TAXATION GUIDE AUSTRALIA Country M&A Team Sydney Country Leader ~ Ian Farmer Tony Clemens David Pallier Wayne Plummer Michael Frazer Mark Kogos Norah Seddon Melbourne Tim Cox Peter Le Huray Jeff Shaw Peter Collins Vanessa Crosland Christian Pellone Chris Morris AUSTRALIA CHINA HONG KONG INDIAINDONESIA JAPAN KOREA MALAYSIA NEW ZEALAND PHILIPPINES 118SINGAPORE SRI LANKA TAIWAN THAILANDVIETNAM GLOBAL M&A CONTACTS 7 MERGERS & ACQUISITIONS ASIAN TAXATION GUIDE SECTIONS General Information Structuring a Share Deal Sructuring an Asset Deal Exit Route Ending Remarks – Preparation for a Deal AUSTRALIA CHINA HONG KONG INDIAINDONESIA JAPAN KOREA MALAYSIA NEW ZEALAND PHILIPPINES 118SINGAPORE SRI LANKA TAIWAN THAILANDVIETNAM GLOBAL M&A CONTACTS 8 AUSTRALIA MERGERS & ACQUISITIONS ASIAN TAXATION GUIDE GENERAL INFORMATION (i) Introduction The Australian taxation system is going through a period of significant change. The Government has launched various taxation initiatives in recent years, including: • complex tax reform measures which follow a review of business taxation; • the rewrite of the entire Income Tax Assessment Act into plain English; • the introduction of a goods and services tax (GST) from 1 July 2000; and • the introduction of the new debt/equity and thin capitalisation regime from 1 July 2001. The Government is also on the verge of introducing
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