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Chapter 9

Tax implications and regulation of

mergers and acquisitions

4.1 Tax implications of mergers and acquisitions

Differences in tax rates and double tax treaties

Different countries around the world have different tax rates. Therefore,
if one company acquires another company based in a different country,
there are likely to be different tax rates for the two companies in the
group.

In order to help avoid double taxation between countries, the OECD
(Organisation for Economic Cooperation and Development) has
published a model Double Taxation Convention.

Group loss relief

Members of a group of companies may surrender losses to other
profitable group members for corresponding accounting periods.

Group relief is only available for losses/profits generated after a
company joins a group, and ceases to be available once arrangements
are in place to sell the shares of a company.

Withholding tax

Withholding taxes need to be considered when one company makes
payments to another within the group (for example as dividends, or
interest on loans).

Typically the withholding tax is treated as a payment on account of the
recipient's final tax liability.

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