How profitable to process the deal M & A

In January, Ernst & Young released a poll tax departments heads 130 largest companies in the world. It turns out that because of the crisis downturn in the market of mergers and acquisitions transactions fiscal component has become more important than ever before. Moreover, tax optimization is often the deciding factor of the transaction or abandon it. The expected effect of optimization of taxation in the implementation of M & A is the sum of the effects of minimizing the indirect and direct taxes. We consider them separately. With caution. The effect of the minimization of indirect taxes is fully manifested in the use of transfer pricing mechanism that allows us to carry the burden of fiscal redistribution from the final product. The essence of transfer pricing is as follows. Enterprises - members of the technological chain to produce the final product produced by transfer of semi-finished product from the redistribution of redistribution (eg, a chain of grain - wheat - bread) at cost or with a minimum rate of return. Earnings accumulated in the marketing structures of the corporation, directly interacting with consumers. There are two possibilities. If the M & A firms remain separate legal entities, the effect of optimization of indirect taxes is composed mainly of calculation of VAT and excise taxes with a low sale value of the transfer of semi-finished redistribution to redistribution. If, after the deal by becoming a single entity and a taxpayer for VAT and excise duties, it allows you to postpone paying tax on the time of the final product and, consequently, the release of additional working capital. Transfer prices may apply to mutual settlements technologically related affiliates. Manipulation of transfer prices in order to minimize the tax burden of corporations has led to the fact that most countries have developed special measures to control the level of transfer prices. As a general principle to determine their fair (in terms of the tax authorities) the level of supposed rule of "arm's length." It states that the transfer price should be set at a level as if the parties had no legal or financial ties. In other words, the transfer price should equal the market price prevailing in these conditions between independent firms. The tax legislation contains no provisions mandating the price used for tax purposes in cases where the transaction price subject to tax audits. A taxpayer may, in principle to sell the goods at a price convenient for him: The Tax Code does not oblige him to use the market or any other price. Count the same for tax purposes "wrong" price of the transaction is the prerogative of the tax authorities. But we must not forget that the tax authority may make a reasoned decision on the additional taxation and interest, calculated in such a way as if the outcome of the transaction were evaluated based on the application of market prices for the goods, works or services (Article 40 of the Tax Code). But to make such a recalculation of the tax authorities are entitled only to barter and foreign trade transactions, transactions between related parties, as well as the rejection of more than 20% of the price level used by the taxpayer on similar goods, works and services within a short period of time. In April, the Ministry of Finance has once again revised the bill to amend the Tax Code, which provides for the narrowing of the scope of controlled operations compared with the current version of Article 40. The main purpose of the tax price controls are transactions between related parties. Fiscal authorities are invited to give the right to convert prices, even if interdependent firms transact through a chain of independent mediators. The bill provides for the allocation of the three groups controlled by the internal transactions: - deals worth 1 billion per year with one contractor - a transaction in which one party pays the tax on mining operations on an ad valorem rate (with operations in the amount of 60 million rubles) - transactions in which one party applies preferential taxation system (with operations in the amount of 60 million rubles). Based on these trends for tighter controls to minimize the possibility of a legitimate indirect taxes on M & A is not so obvious. However, the bill provides for the possibility of legally buy off price control: an opportunity for organizations to 1.5 million rubles from the state to conclude a three-year agreement on pricing, which may be of interest for large taxpayers. Two options. The effect of optimization of direct taxes is the ability to minimize taxable income on the acquisition of loss-making enterprises. However, to obtain such a result is necessary to choose the legal form of the transaction M & A. Registration can take place in two main ways: - the acquisition of the absorbed company as a property complex (according to Article 132 of the Civil Code) - the acquisition of shares followed by the addition of society through the reorganization. The procedure for determining income and expenses when buying a business as a property complex is set in Article 268.1 of the Tax Code. To conduct this transaction is necessary to calculate net asset value of the affiliated companies (the difference between assets and liabilities) and compare with the purchase price of the company. If it is higher than the net asset value, the difference between them is uniformly included in the cost of the reorganized company over the next five years (in accounting this difference corresponds to the concept of goodwill, which is also included in the costs over a period of time). If lower, the difference is recognized as income in the month in which the state registration of transfer of ownership of the enterprise as a property complex. Thus, the acquisition of the company as a property complex absorbing or organization include in the expenses of only the amount you overpaid for the acquisition of the expected synergies, or at all will increase taxable income, if you managed to buy undervalued property complex market. Transfer the accumulated losses of affiliated company to reduce taxable income in future periods will not work, because according to Article 283 of the Tax Code, the losses remain with the seller. In the second case, the organization, acquiring shares of loss-making company, is the cost of acquisition of investments, that is, creates a new asset, the cost of which will form the only expenditure in the subsequent sale of those shares. In the period of absorption in the absorbing organization does not appear possible to reduce taxable income. However, absorption through the reorganization lies another possibility for its minimization. Organization of the successor is entitled to reduce its taxable income to the amount of losses incurred by companies adhered to it until the restructuring (paragraph 5 of Article 283 of the Tax Code). Organization with high taxable income, absorbing company with accumulated tax losses can be attributed those losses to reduce income of the reorganized company from next year after the reorganization. This loss may be carried forward to the future by the same rules as those prescribed for taxpayers not engaged in the reorganization. That is a loss, resulting in the reporting year may be transferred in whole or in part for the next ten years after its inception. There are no restrictions on the maximum amount of loss for a portable reorganized companies are not provided. However, one should take into account the fact that tax authorities pay close attention to transactions involving the merger of loss-making companies. There is a letter from FNS 11.08.06 № GV-6-02/564 @, in which tax inspections mandated to check the extent reasonably successor organization reduced the amount of profit on losses incurred prior to the reorganization of companies. Need to stock up on evidence that the purpose of the transaction M & A, related to the acquisition of loss-making organization, is not to minimize taxable income, and receipt of real business benefits. Otherwise, the tax authorities may charge the buyer to obtain unwarranted tax benefits. Difficult choices. It may seem that the second method of legal registration of M & A transactions is definitely more profitable. But not so simple. Both options have their pros and cons. For example, when you sell shares in their taxable income the owners there, so they can pledge the amount of tax in the price of the company. In addition, the sale of shares and the restructuring of the organization of a successor shall bear all liabilities and risks associated organizations. Thus, in accordance with Article 50 of the Tax Code, the duties to pay taxes of the reorganized legal person entrusted to his successor, regardless of whether they were known prior to the reorganization of the assignee of the facts and (or) the circumstances of non-performance or improper performance of the reorganized legal entity specified duties. At the same assignee shall pay all fines owed to him to have passed to the duties. That is, apart from suffering a loss, there may be a chance to acquire trail of tax arrears, which will not reduce taxable income. On the other hand, the sale of the property complex of the purchaser does not become a license to engage in certain activities, as they are issued by a legal entity. In addition, the sale of the enterprise as a property complex is subject to VAT, which means a buyer for the excretion of additional funds from the market. * Author - Ph.D., assistant professor of "Economics, Management and Investments" South Ural State University