3 minute read 18 Nov 2019
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Three tax issues to consider when you plan to sell

By

EY Global

Multidisciplinary professional services organization

3 minute read 18 Nov 2019
Related topics Tax Tax planning

While sellers often think of tax issues as a risk, some are beginning to consider tax differently.

Geopolitical uncertainty and rapid-pace technology changes are making portfolio and divestment strategy more critical than ever. Tax, an increasingly impactful aspect of geopolitics, is also becoming a disruptive factor. While sellers often think of tax issues as a risk to value, sellers are increasingly considering tax as a way to maximize sale price. Here we share tax-related insights from our Global Corporate Divestment Study.

1. Communicate tax upsides

Given the rapidly changing global tax environment, it is increasingly difficult for buyers to identify tax value and opportunities from the outside. The most successful sellers look at their business through the eyes of a buyer, proactively highlight potential tax upsides and price the business accordingly. Highlighting tax upsides tops the list of initiatives that companies didn’t undertake but wish they had.

Tax upsides

63%

more companies generate a sale price above expectations when they highlight tax upsides to purchasers.

2. Be flexible with sale structure

Tax considerations are typically an important part of assessing the cost and benefit of alternative transaction structures. To maximize value, sellers must consider the tax implications on a buyer and seller in tandem with the commercial and operational drivers for differing structures. Nearly half (48%) of companies say lack of sale structure flexibility was a leading cause of value erosion in a recent divestment.

Alternative structures

95%

more companies achieve a sale price above expectations when they understand the value of alternative structures to potential buyers.

3. Avoid tax risks that could erode value

Recent tax changes globally and expected upcoming reforms are making it more complex than ever to understand the tax profiles of businesses. Only 28% of companies indicate that their presale preparation to mitigate price reductions for tax risks is very effective — highlighting the increasingly conservative view of buyers on historical tax risks and the need to do more than provide basic information in a data room.

Tax profile

48%

of companies see tax as a bigger challenge to divestment execution over the last year.

Looking at a business through the eyes of a purchaser is fundamental to understanding how tax risk may be perceived and how the transaction can be structured to increase sale value.
Bridget Walsh
EY Global Transaction Tax Leader
Tax value inherent in businesses is not always obvious to either a buyer or seller.
Richard Clarke
EY Transaction Tax Partner

Top tax considerations

When it comes to communicating tax upside, where relevant, sellers should:

  • Understand the benefits to buyers of different sale structures
  • Provide a detailed tax model to illustrate when tax losses and other attributes will offset cash taxes
  • Review historical tax advice and the trail of why positions were taken
  • Illustrate the capacity for tax-deductible debt, country by country
  • Seek to agree on open tax points with tax authorities where possible
  • Highlight tax incentives that could be available
  • Outline tax efficiencies that have been considered but not yet implemented
     
  • About the study

    The EY Global Corporate Divestment Study focuses on how companies should approach portfolio strategy, improve divestment execution and future-proof their remaining business amid massive market disruptions. The 2017 study results are based on more than 900 interviews with corporate executives between October and December 2016 conducted by FT Remark, the research and publishing arm of the Financial Times Group.

Summary

If you understand your tax profile and are willing to be flexible with alternative sales structures, your tax profile could become an upside to a divestment.

About this article

By

EY Global

Multidisciplinary professional services organization

Related topics Tax Tax planning