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Global M&A Tax Survey and Trends
The growing role of the tax director.
Companies are focusing more and more on the tax aspects of M&A. As we make clear in this report, this focus is partly because tax authorities are scrutinising transactions more closely than ever before. But this increased concentration is also due to the drive to ensure that deals deliver the value they promise, as company boards examine transactions in more detail. Specifically, boards are looking increasingly to tax directors to provide them with a full understanding of a deal's tax impact.
This is particularly important in emerging markets, where even companies with years of experience doing deals in these regions of the world face unfamiliar legal and regulatory challenges, of which tax is one of the biggest. Tax directors of such companies prepare a thorough assessment of the tax risks associated with a potential transaction. At the same time, they accept that uncertainty is inevitable in such markets and manage this uncertainty by familiarising themselves with the local tax environment, not just the local tax law, practice and procedure but also the reasoning behind it.
Companies continue to seek value from transactions in a wider range of tax areas than ever before. More than half of the tax directors questioned in this year's survey said that when planning a transaction, they reviewed the tax effectiveness not just of matters requiring immediate attention to get the deal done, but also of other aspects of their company's operations that could be affected by the transaction - areas such as tax-effective supply chain planning, intangible assets and indirect tax.
Companies are also more willing than before to factor tax synergies into deal valuations. Here the tax director's role is pivotal - as it is critical to have a full understanding of the balance between the potential value to be created and the corresponding risks. An objective assessment of both is essential to achieving an accurate valuation, especially in emerging markets, where companies look to their tax directors for guidance on how much value should be attributed to items such as losses and incentives that may have a restricted life.
Identifying potential tax value from transactions is one thing - delivering it in practice, even when it has been factored into deal valuations, is another. The responsibility for delivering a transaction's expected tax value falls squarely on the tax director. And success is influenced by a number of factors - among the most significant are the strength of the relationship between the tax function and those responsible for closing the deal and delivering transaction synergies. Also important is how early the tax function is brought into the transaction.
In the most successful companies, the tax director and tax team work hand in hand from the outset of a transaction with the chief financial officer, the corporate development officer and their respective teams. This early involvement of the tax function is important when selling a business, too. Companies that invest time and effort into planning a sale and in anticipating the needs of potential purchasers tend to realise a higher value from their divestments.
In our conclusion, we set out a range of measures tax directors can follow to help deliver tax value from future transactions in the four key areas of:
- Supporting investment decisions at the board level, including factoring tax into valuations
- Navigating the risks of emerging markets
- Enhancing value from divestments
- Developing processes to deliver tax synergies