- In the M&A process, tax planning plays a critical role. U.S. tax support has far-reaching implications for transaction structuring, asset dispositions, and post-merger operations.
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When conducting an acquisition or merger, companies must evaluate a wide range of tax implications, including (but not limited to) capital gains tax, income tax, sales tax, and tax issues arising from interstate and cross-border transactions. First, the company must determine the form of the transaction. Common structures include asset purchases and stock purchases. Asset purchases often provide greater tax benefits to the buyer, for example, allowing depreciation or amortization based on the newly acquired assets, thereby reducing future tax burdens. In a stock purchase, however, the buyer typically cannot access these tax benefits immediately, but may avoid the administrative complexity associated with asset transfers. Second, the financing structure of the transaction also affects tax outcomes. For instance, if a company chooses to finance the acquisition, it must assess whether interest expense is tax-deductible and whether this could increase the overall tax burden. Cash consideration, by contrast, avoids interest costs associated with borrowing, but may place pressure on the buyer’s cash flow.
- In addition, the transaction structure must take into account potential tax benefits or preferential policies. Under certain conditions in U.S. tax law, corporate reorganizations may qualify for tax advantages (for example, under Section 338 or Section 368). These provisions can reduce the post-merger tax burden and make the acquisition process more efficient.