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3.2016 International November 2016 international Client wts journal Information # 3.2016 M&A Insights – 2016 Tax Guide to International Stock Acquisitions Table of Contents Editorial Stefan Hölzemann | Partner / Head of M&A Tax | WTS Germany Francis J. Helverson | Managing Partner | WTS US 4 AUSTRIA Dear Reader, 5 BELGIUM We are pleased to present our 2013 Guide on such debt may not only reduce the 6 BRAZIL to International Stock Acquisitions. 2012 tax base of the target, it may also help saw a significant increase in M&A activ- ensure that sufficient cash flow is avail- 7 CHINA ity and 2013 promises to continue the able to the parent or other related-par- 8 CZECH REPUBLIC trend. Both large and small deals increas- ty lender. This can be very important ingly involve global target companies when a transaction is funded through 9 ESTONIA and multi-jurisdictional business issues. external debt financing. The ability to 10 FINLAND Indeed, much of the uptick in deal activity achieve a debt push-down or deduct is attributed to aggressive cross-border interest expense may be restricted or 11 FRANCE expansion. otherwise limited in many countries. 12 GERMANY → Step-Up. When a company is acquired, Stefan Hölzemann Francis J. Helverson Effective international tax structuring a step-up to fair market value in the 13 HONG KONG increasingly plays a key role in determin- tax basis of the target company’s assets 14 HUNGARY ing whether targeted results are achieved. can sometimes be achieved. A step-up Avoiding the tax pitfalls and capturing may offer the benefit of increased tax 15 INDIA the opportunities can be driving factors depreciation or amortization deduc- 16 ITALY in gauging the success of a deal. Many tions. Although an asset-basis step up countries facing fiscal crisis issues have in a stock acquisition is typically not the 17 LATVIA used tax reform as a tool to help address norm, in some countries certain step-up 18 LITHUANIA budget deficits. Some rules are intended benefits may be achieved. to encourage investment by reducing tax → Transaction Costs. External costs in- 19 LUXEMBOURG burdens, whereas others may have the op- curred in pursuing an acquisition, such 20 MEXICO posite effect. Navigating the tax implica- as investment banking and professional tions of a cross-border transaction can be advisory fees, can be substantial. The 21 NETHERLANDS challenging due to continually evolving ability to deduct these costs and timing 22 NORWAY rules. of such deductions should be consid- ered. 23 PHILIPPINES The Guide provides a summary of certain → Exit Scenario. The tax consequences of 24 POLAND key issues that a foreign acquirer may a disposition of target company shares consider when purchasing the shares of should also be considered. In some 25 RUSSIA a target company. The Guide does not cases, the sale of shares by a foreign 26 SINGAPORE address all issues associated with a stock shareholder may be entitled to pref- acquisition. The issues covered are de- erential tax treatment, or may be free 27 SOUTH AFRICA scribed below. of tax altogether. An understanding of 28 SPAIN such rules is helpful not only for nego- → Change of Ownership / Impact on tiating with the selling shareholder of 29 SWEDEN Tax Attributes. Many countries have a target company, but also for purposes 30 SWITZERLAND rules that restrict the utilization of tax of considering a future disposition by loss carryforwards or other attributes the acquirer. 31 TURKEY following a change in ownership. An 32 UNITED KINGDOM understanding of the impact of these In addition to the five categories above, rules is critical in projecting the future we also highlight certain other issues that 33 USA after-tax cash flow of an affected target are particular to a country’s tax regime. company. → Debt Push-Down. An acquirer may We hope that you find our Guide useful wish to capitalize a target company and we thank our authors for their valu- with intercompany debt. The deduct- able contributions. Feel free to reach out ibility of the interest paid or accrued to us or any of our local-country authors. international wts journal | # 3 | November 2016 2 3 international wts journal | # 3 | November 2016 AUSTRIA Corporate Share Deals by Non-Residents in Austria Corporate Share Deals by Non-Residents in Belgium BELGIUM WTS TAX SERVICE STEUER- TIBERGHIEN BERATUNGSGESELLSCHAFT MBH Change of ownership rules Step-up for target company Change of ownership rules We have recently noticed the Belgian tax authorities actively challenging leveraged In general, pre-existing business tax The domestic holding company must book As a general rule, tax losses and excess transactions. Several cases are pending losses can be utilized by an Austrian target the acquired shares of the Austrian target investment deduction can be carried before the courts. In one case, the court of company following a change of owner- at cost. Goodwill may not be amortized in forward indefinitely. There are howev- first instance confirmed that the general ship. However, where there has been a a share deal. er some specific time-limitation rules anti-abuse provision may apply. considerable change in ownership (i.e., applicable to the carry forward of notional more than 75 percent) connected with a Transaction costs interest deductions. Step-up for target company substantial change in the organizational and economic structures of the Austrian Costs associated with concluding the sales A specific anti-abuse rule shall apply The shares of an acquired Belgian target target, the losses may be disallowed. & purchase contracts (e.g., attorney and upon the change of the (direct or indirect) are reported at acquisition cost in the The organizational structure is deemed notary fees, commission fees, broker’s control over a company. Tax losses carried books of the domestic holding company. to have substantially changed if there fees, etc.) are considered part of the forward, investment deductions and unap- No step-up is recorded at the level of the has been a change in the majority of the acquisition cost. Pre-acquisition costs (e.g., plied notional interest deductions will be target company if the transaction is a share managing board members. The economic valuation, due diligence, advisory, etc) are forfeited unless it can be demonstrated deal. structure is deemed to have substantially generally immediately tax-deductible. that the change of control is not mainly changed if there is a substantive quan- tax-driven. Transaction costs titative or qualitative expansion of the Exit scenario: taxation of capital gains existing business or a new business unit is on the sale of shares by a non-resident Debt push-down Costs associated with the transaction (e.g. started which is significantly larger (i.e., by due diligence, attorney and broker’s fees, 75 percent) than the old activity. Capital gains from the sale of a one per- Belgian tax law does not provide rules for etc.) are tax deductible expenses if the cent or greater ownership interest in an fiscal consolidation (no “tax group” for general conditions for the deduction of Debt push-down Austrian target by a non-resident company corporate income tax purposes). We notice business expenses are met. are subject to corporate income tax. There several structures (equity stripping of the A non-resident acquirer can establish a is no withholding tax on capital gains. If target followed by refinancing, merger Exit scenario: taxation of capital gains domestic holding company to acquire the a double tax treaty applies, however, the transactions etc.) are utilized to push on the sale of shares by a non-resident shares of an Austrian target. Interest on the country of the seller’s residence typically acquisition debt to the level of operating acquisition debt is generally deductible, has the exclusive right to tax capital gains equity. As a general rule, capital gains on shares provided that the Austrian target is not ac- (unless the Austrian target is a real-estate are subject to a special tax of 0.412 quired from a related party. If the domes- company and the double tax treaty has As a general rule, interest charges are tax percent if (i) the shares represent capital tic holding company acquires more than a so-called “real estate clause”). In such deductible if they meet the conditions to in a company subject to an income tax 50 percent of the capital and voting rights cases, no capital gains taxation occurs in qualify as deductible business expenses. regime (taxation condition) and (ii) the of the Austrian target, the companies can Austria, even if the ownership interest is For example, it must be demonstrated that shares have been held for an uninter- form a tax group under Austrian tax law. one percent or greater. these expenses are made in view of main- rupted period of at least one year. No A tax group requires that the domestic taining or increasing taxable income and minimum shareholding is required. Where holding company holds a financial interest Other special taxes or issues to be that they relate to the company’s business the shares are sold before the minimum of more than 50 percent in the capital and considered activities. A 5/1 debt/equity ratio applies one year holding period is lapsed, capital voting rights of the Austrian target. The for intercompany debt (or bank debt guar- gains (if any) will be taxed at a separate interest expenses of the domestic holding If the Austrian target owns real estate, the anteed by related companies). rate of 25.75 percent. Where the taxation company can then be offset against the transaction (unification of at least 95 per- condition is not met (e.g. the target is not Austrian target’s operating profits.
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