Module II·Article V·~1 min read
Taxation of Restructurings and M&A
Corporate Taxation
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Tax Aspects of M&A
Mergers and acquisitions generate significant tax events. The tax aspect often determines how the deal should be structured.
Share Deal vs Asset Deal: tax differences
Share Deal (purchase of shares): the seller pays tax on the profit from the sale of shares (personal income tax (PIT) 13-15% for individuals, corporate profit tax for organizations). The buyer “inherits” the company’s historical tax risks (hidden liabilities, disputes). There is no tax depreciation of assets (assets acquired “at book value”).
Asset Deal (purchase of assets): the seller pays VAT (if the assets are subject to it) + profit tax from the sale of assets. The buyer receives a “reset” — assets are recorded at the acquisition cost, depreciation is calculated. There are no “inherited” tax risks.
Reorganization: merger, accession, split
Tax neutrality of reorganization: in the case of reorganization in the form of merger, accession, or spin-off — the transfer of assets and liabilities is not considered a sale and is not subject to VAT and profit tax. The successor receives the tax history (including tax losses to be carried forward).
Carrying forward losses: tax losses can be carried forward to future periods (in Russia — with no year limitation, but from 2017 to 2024 the limitation is 50% of the tax base per period).
Practical Assignment
A strategic investor wants to purchase a manufacturing company. The seller is an individual (60% share) and a Russian company (40%). The company’s balance sheet includes real estate that was purchased for 50 million rubles and is now valued at 150 million rubles. Compare the tax consequences for both parties in: (1) Share Deal, (2) Asset Deal.
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