The tax result of a business sale or acquisition is often determined before the final agreement. The choice between shares and assets, the price allocated to each component, financing and any pre-closing reorganization can materially change the after-tax outcome for both parties.
Bringing in the tax adviser only after signing limits the available options. The adviser’s role is to convert the commercial objective into quantified scenarios, identify risk and coordinate implementation with the accounting and legal teams.
Become involved before the letter of intent
A letter of intent may already establish the form of the deal, a price range, vendor financing, an earn-out or a closing date. These terms have tax consequences and should not be negotiated solely by reference to the headline price.
The tax adviser compares the seller’s net proceeds with the buyer’s actual cost. A higher offer may be less attractive if it converts a capital gain into ordinary income, defers payment without adequate protection or creates an unquantified liability.
Choose between a share sale and an asset sale
A seller often favours a share sale to transfer the corporation as a whole and, where the requirements are met, consider the capital gains deduction. A buyer may prefer assets in order to select the property and liabilities assumed and obtain a new tax cost.
The tax adviser explains the differences rather than imposing one form. A hybrid structure, pre-closing reorganization or price adjustment may sometimes bridge the gap between the parties. See also our tax services for corporate transactions.
Perform tax due diligence
The buyer needs to know whether income-tax returns, sales taxes, source deductions, shareholder accounts and related-party transactions were handled correctly. Losses, credits, tax balances and other attributes included in the valuation should be verified.
The seller also benefits from a readiness review. Correcting the file, assembling records and explaining unusual positions before the data room opens can reduce late requests, holdbacks and excessive indemnities.
- Returns and assessments for open years.
- Sales tax and payroll remittances made on time.
- Shareholder and related-party accounts reconciled.
- Tax attributes supported by schedules and assessments.
Coordinate price, financing and elections
In an asset sale, allocating the price among inventory, depreciable property, goodwill and other assets affects both current tax and future deductions. In a share sale, tax indemnities, working-capital adjustments, holdbacks and contingent payments should be reflected in the model.
Tax and sales-tax elections may be available, but they must fit the facts and be filed on time. The legal agreements, accounting entries and tax forms should all describe the same transaction.
Follow the transaction through post-closing
The work does not end when funds are transferred. Final returns, elections, price adjustments, debt repayments and post-closing reorganizations must still be completed. Our corporate reorganization and tax planning services support that continuity.
Impôts Ici can analyze an offer, model alternative structures and prepare the tax file for the transaction. To become involved before the next negotiation step, contact our team.
