Transactions Blog

2008 and 2009 are challenging times for the M&A market due to the lack of available funding. Many investors and international groups are looking for cost-cutting opportunities and cash optimisation.

During the 5th session of our M&A Academy, we tried to evaluate how reshaping your conventional business model towards a more flexible structure can help you in for example the improvement of your business model or the optimisation of your tax credits and/or cash position.

Since business restructurings trigger multiple tax issues, not only transfer pricing aspects, this module also focused on the following aspects:

• the arm’s length risk allocation to restructured group entities;
• the potential ‘exit charges’ and indemnifications upon restructuring;
• the recognition, by tax authorities, of restructuring transactions.

Download “Tax implications of business restructuring”

More info about the M&A Academy season (programme, registrations, etc.)

Today, more than ever, effective tax management is key in case you are dealing with situations such as:

-        determining a bid price in an acquisition process;

-        reallocation of existing bank debt and intercompany debt;

-        reorganizing your current group structure;

-        understanding  the impact of taxes on your cash position;

-        a complex supply chain with multiple countries and entities;

-        valuation of deferred tax assets;

Effective tax management can result in decreasing the effective tax rate, maximising the use of available tax assets, optimising the existing leverage, improving the cash flow and reducing compliance costs.

Modelling your taxes helps you to better understand, anticipate and further optimise your direct and indirect tax charges and to obtain an improvement of your working capital based on your business plan.

Depending on your needs, such tax model can provide you a fair and better understanding of the tax impact of maintaining your current group/financing structure as opposed to implementing alternative scenarios, allowing you to decide on such restructuring/refinancing scenarios in a more informed manner.

…Hence, tax modelling is an indispensable aspect of financial management.

A new Tax Act Implementing the EU Tax Merger Directive into Belgian law was published in the Belgian Official Gazette on the 12th January and came into force immediately.

The act introduces a tax-free regime for cross-border reorganisations. In addition, it also brings the existing tax provisions applicable to internal reorganizations in line with the EU Merger Directive.  Most provisions are applicable as of the date of publication.

The EU Merger Directive of July 23, 1990 (as amended by the EU Directive of February 17, 2005) provides for a tax-neutral regime for cross-border reorganizations such as mergers, demergers, partial demergers, share-for-share transactions, contributions of assets and transfers of registered offices. Tax neutrality is provided both at the level of the companies involved in the reorganisation as well as in the hand of their shareholders.

Until now the EU Tax Merger Directive was not implemented in Belgian tax law, meaning that cross-border reorganisations were not covered by appropriate tax legislation. This situation is now resolved with the publication of the new Act.

The Act provides for a tax-neutral regime for cross-border reorganisations involving Belgian entities and/or Belgian permanent establishments. Moreover, various existing tax provisions applicable to internal reorganisations have also been aligned with the EU Tax Merger Directive. Other improvements have also been implemented to the existing general tax provisions relating to reorganisations.

Under specific conditions, Belgian tax resident entities and/or Belgian permanent establishments can now be involved in pan-European tax neutral reorganizations, where previously, for most cross-border reorganisations, tax-neutral regimes were not available.

The Act deals in particular with cross-border (inbound / outbound) mergers, demergers and cross-border (inbound / outbound) contribution of assets (lines of business / permanent establishment) and exchange of shares.

Because of the importance of this new legislation, the PwC Transactions team is organising a half-day conference in our office in the afternoon of 3 February 2009. PwC will give a thorough update on the changes that will be introduced by this new legislation and the opportunities it will bring for your business.

During this session, it will be explained how you will be able to carry out cross-border reorganisations tax-neutrally (whether in the form of a merger, demerger, contribution of a business, transfer of a seat of management, share-for-share deal, etc.). Among other innovations, it will allow you to utilise cross-border tax losses or simplify your group structure by reducing the number of entities in it, which will even become more and more important given the current market environment. It goes without saying that such reorganisations also have important social law aspects. PwC will also address these issues during the conference.

In addition, we take this opportunity to discuss the recent corporate law developments (regarding a.o. acquisitions of own shares, financial assistance and cross border mergers) and their impact on reorganisations.

Check the PwC M&A Academy website for more information.