Tax Management Lesnotities 2019-2020

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Samenvatting tax management

2019-2020

De cursusdienst van de faculteit Toegepaste Economische Wetenschappen aan de

Universiteit Antwerpen.

Op het Weduc forum vind je een groot aanbod van samenvattingen, examenvragen, voorbeeldexamens en veel meer, bijgehouden door je medestudenten.

www.weduc.be

Introduction

Tax management is very diverse: 3 topics. Taxation rules change so often.

 Financial statements of a company: what is important from a taxation point of view?  Cross border mergers and acquisitions

 Tax aspects of supply chain companies: correct pricing of intercompany transactions. Alleen kennen wat we gezien hebben in de les.

Exam: end of January.

Written exam in 2 parts: multiple choice (with correction) supplemented with open questions. Not becoming a tax specialist after the sessions: impression that u have an understanding of what was discussed during class. Exam in English but u can answer in Dutch.

Balance sheet of AB Inbev Belgium: topic 1.

Banks have different financial statements. Certain items are also specific for banks. Discussing the financial statement of AB Inbev. That’s why we have chosen to not discuss a bank.

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1. Inbev Belgium

Besloten vennootschap met beperkte aansprakelijkheid

BVBA’s: medium sized companies. What’s the reason behind this form?

A BVBA has to publish their financial statement. They have limited liability (beperkte

aanspraakelijkheid).

Interesting from a tax point of view: reason that multinationals choose this legal form: only us stock quoted/ us based multinationals: the BVBA is a legal form that enables a top listed company to select a company (AB Inbev) as a check the box company.

The company has a holding function, but it’s not necessarily linked with the legal form.

There are different legal forms: different regarding responsibilities, who are the shareholders or the start capital for example. Legal reason to make a choice between BVBA (limited liability), NV and VOF.

Commanditaire vennootschap:

NV and BVBA need to deposit their financial statements to the national bank. CV doesn’t need to publish their statements. A legal form with unlimited liability but no need to publish balance sheets. Example: Commercial Sales: an office in France (CE). Buy or rent an office space in the main street. 2 options:

AB Inbev Belgium Subsidiary.

Set up another company: ‘’X’’ Financial fixed asset.

Sales activities are going to be registrated on the balance sheet as an income from ‘’X’’

Branch  PE Difference:

1. Company (Belgium) is going to set up another (French) company. It incorporates another company. 2 legal forms: A Belgium one and a French one: 2 tax payers.

2. We are going to create a satellite activity, buying or renting an office in own name (Belgium company). On the own payroll. 1 legal form but 2 tax payers.

Why choose for a certain option? Belgian company starting a company in France (NV), company had to deposit the financial statement of the French company in Belgium.

If you have a branch you only have to deposit the financial statements of the head office.

3. Anderlecht

What’s the relevance of the company’s adress? Whats the link with taxes? Local taxes, community taxes (higher in a big city) are different.

Assume: renting an office in brassschaat: a lot of success, high profits: a lot of people on the payroll. Consequence of your success when operating in brasschaat instead of the big city? Companies which are incorperated in Brussels, Antwerp: the likelihood of being audited by the tax authorities is

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smaller. If you become big in a small town, you can get a visit from the tax authorities. In Brussels or Antwerp you are on the many: likelihood of being audited is minimalized.

For example: Zeeman got big in a small city and then moved to a big city so they had less visits from the tax authorities.

4. 31-12-2018

Relevance from a tax point of view? Different deadlines.

This date relates to tax assessment year (in this example 2019). Suppose company closed the books 30/12/2018 than it is tax assesment year 2018. Assessment year is in Belgium the year after the financial year if the company closes the books on 31/12.

New law says: any changes to the closing date of the financial year after this date we consider as non valid. Because if the governement announces something in the media, they say in the law that changes in the date are not valid.

5. List of directors

They all have an adress in Belgium: whats the relevance of this? Board of directors meeting also need to be in Belgium.

Tom Boonen had a plan to start a company in Monaco: it is a tax heaven. Tom Boonen built a villa in Belgium. The place of management: the company needs to be managed from the same country. If the majority of the people are not living in Belgium and it’s a company in Belgium, they will look in to it.  Discover tax advoidance. Make an effort to go once a year to Belgium to have a physical company.

6. Intangible fixed asset

If you have intellectuals rights, what can u do with this? Potentially they relate to a patent. Company B gives a patent to company A. Company A pays royalties in return to Company B.

Interesting tax feature: if you put your patent at another company’s disposal, they have to pay royalties to you. Royalties are most often a percentage. If the other company is foreign, that company’s home country will try to get taxes of that payment. Witholding tax will be due on the royalties (roerende voorheffing: 30% in Belgium).

 Double tax treaty in order to avoid that the same payment will be taxed twice. The rules of this treaty prevail (overheersen). The local domestic rate (roerende voorheffing) has to be adjusted to what the treaty says. The withholdig tax goes to the paying company’s country, the rest of the royalty money goes to the country of the company holding the patent rights.

 Tax return of company holding patent: pays taxes only on the money it received from the foreign company, not the total amount because a % of that went to the foreign tax authorities.

B  patent  B

B  Royalty (%)  A

100 euros royalty to be paid by A (Belgium entity) to B. 100 is an expense for A, tax will be due upon payment.

1. Witholding tax in A: 30%

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 If the DTT says that the local tax of the royalties may not be higher than 15%. Then it has to reduce the local rate of 30% to 15%. 15% will be for the tax authorithies of country A. 85 will be registred as a cash payment for company B.

 A pays 15% (15 euro) to tax authorities of A and 85 euros to B  Balance of B

50 @ 85 (foreign tax expense) 64 @ 15

74@100

B has to pay 25% taxes on income (85) to local tax authorities, but is has already paid 15% to foreign authorities so it should be deducted in some kind of way.

85 (25%)

- 21,25 : tax autohorities of country B 63,75

In Belgium there is a credit system for royalties. If you receive royalties where taxes have already been payed on, you have the right on foreign tax credits = ). 15/85 net RI = 15/85 * 85 = 15, tax credit of 15. Add foreign tax credit (15% = 15 euro) to the income (85 euro) in order to calucalte the local tax amount (25% of 100 euro. Then you deduct the amount you already paid (foreign tax credit not a real expense) trough the tax return form and eventually you pay 25 euro – 15 euro = 10 euro to local authorities an keep an income of 75 euro.

 Better than paying 15% on 100 euro to foreign authorities of A, and paying 25% on 85 euro to local tax authorities. 75 instead of 63,75.

You can also say you don’t license out the patent, but use it in the production process. A part of the income can be related to the use of that patent (embedded royalties).  Favourable taxation system. Nett innovation income: only 15% of the qualifying innovation income is subject to tax, 85% of the net-innovation income is tax exempted. A lot of campanies in Belgium benefit from qualified innovation income.

7. Financial fixed activa

17-21

Option 1 is renting/buying of a foreign office.

 Where are permanent establishments to be found (branches)? NOT visible in financial statements in Belgium! Because it stays 1 company, 1 legal form. So incomes of sales in foreign country and rent, buying amount will be shown on balance of the company, not on that of its subsidiary because there is none.

If we rent an office in another country it will registred as an 61 account. If we buy an office it’s material fixed assets but u can not see if the material fixed assets is in Belgium of in another country.  You can not see if the company operates with branches.

8. Share capital

Company has a significant share capital. Significant amount. What can the origin be of share capital? A company has a certain amount of share capital that is represented by x shares. If you buy a share  check the balance sheet: share capital. Origin of the amount, what is the amount composed of? Ab Inbev is already a good going company.

If you would start a company, incorporate an BVBA, how do you generate share capital? Minimum amount of share capital needed: money. The first source of share capital is money, cash. Other sources that can contribute to share capital: assets, work force (own commitment to elaborate).

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Third source: normally used or activated during the lifetime of a company: profits. Incorporate profit in the share capital: ‘’we don’t need dividends’’.

2 kind of profits: items which are part of the profits but they had a different tax fee.

9. Tax free reserves (belastingsvrije reserves)

Tax treatment of paying out dividend from the tax free reserves? Holding tax but also corporate tax: the profits which have been booked in that category, they have not yet been taxed. Corporate tax till a certain rate will be due.

 Tax free when the profits are kept in the company: temporary exemption.  Taxed reserves: beschikbare reserve

10. Overgedragen winst

If we take the dividend out of the ‘’overgedragen winst’’: already been taxed. Which taxes are due? Only the withholding tax and no corporate income taxes.

The content of share capital, it’s not indicated what the nature is. Cash, assets or profits. If share capital originates from cash or assets, are taxes due then? 1 euro given, and want this one euro back  capital reduction  we know it’s cash originated. Tax free or not? If your share capital consists only out of cash contributed share capital, then there is no tax due for a reduction of share capital. In Belgium it becomes tricky, if during the lifetime of the company, the shareholders have decided to also incorporate taxed reserves and tax free reserves in the share capital. If tax reserves have been incorporated there is a tax liability (belastingsschuld of verplichting).

 Corporate tax = vennootschapsbelasting  Withholding tax = roerende voorheffing Taxed reserves in the capital share: withholding tax

Tax free reserves in the capital share: corporate tax and withholding tax. Only cash in the capital share: no tax due.

Exam!!! Capital reduction what is the tax liability? Depends on elements included.

11. Financial debts

Instead of a percentage of the equity every year you now need to calculate the incremental increase of the equity. How is my equity today, and what was it 5 years ago? You can only claim a very tiny percentage on this increase. It was a popular feature in Belgium, but now it has become almost irrelevant because the position of the market (negative interest) and the government has changed the rules.

Relevance of equity? Notional interest deduction. Finance to equity

Finance to loans: deductible interest expenses.

Is a company free to define the relationship between equity and debt? Free in how to finance their equities? Legal intervention that limits?

A company that has a very small capital and a big amount of loans, is a company who is thiny capitalised.

A lot of equity and no loans: it is a company who is fat capitalised.

You can deduct the interest, interest is used to reduce your income, by deducting your interest you reduce your taxed income.  What will tax authorities try to get in the law? Propose a maxiumum deduction.

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Provions: thin capitalisation rules: that try to define the relation between equity and debt. E/D – D/E. 5 to 1 rule. Debt 1, equity 5.

ATAD (EU/OECD): anti tax avoidance directive. A directive (european law) that has to be implemented by the european countries to try to avoid tax avoidance. In addion to the 5/1 ratio, Belgium has also implemented elements of the ATAD: that rule limits the net finance cost to 30% of EBITDA (tax defined EBITDA). Try to monitior the magnitude of interest that a company wants to deduct.

Interest limitation: to discourage artifical debt arragenemt designed to minimise taxes.

12. Omzet/ revenue

Assume that AB inbev only operates trough subsidiaries, it acts as share holder in other foreign group entities. Are the turnovers of these form group entities included in this amount (omzet) or not? In an unconsolidated financial statement, the turnover is the turnover of the Belgium entity alone.

AB inbev no subsidiaries, but operating through branches. Than the turnover is incorporated in the revenue. Pay taxes on this branch profits.

What is the tax relevance of the 60 account of AB inbev? 600/8 Purchases. Tax relevance? It is a cost. Import duties: if those raw materials are imported from outside the european countrt. What

question will pop up if you see such a big amount that has such impact on the profits? Are they valued correctly? Issue of transfer pricing. Required to purchase the raw materials from a related company.

Same for services. If there are from an unrelated company, there is no problem, but when it’s a related company, we have to make sure they are valued correctly.

13. Financial income

o Dividend  Income  Company receives dividends from investing in other companies. o Interest Dividend Interest C 100 (1) No withholding tax ABI 100 DBI DBI 0 25 100 75

Is withholding tax due if the dividend is payed out to a share holder?

 First you have to look at the local/domestic tax laws. If not, then it stops.

If yes, in case of a cross-border situation you need to consult something else. Is there a double tax treaty to reduce or prevent double tax paying? If the companies are both European, the conditions of the European directive are fulfilled and there is no withholding tax.

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What happens with dividend income that’s received by a Belgian corporation?

DBI  It is created in order to avoid, if you have a lot of layers of shareholders that the dividend income is taxed 2 or 3 times. The dividend income flows trough without any additional tax. For corporations, if certain conditions are fulfilled there is no tax due. 100 is accounting profit, taxable profit. But DBI. In English DRD.

DBI exist for corporations, for individual (physical persons) it does not exist.

= In order to avoid that business profits are taxed over and over again…. Until they end up with the final shareholder. It guaranties that the dividend income is not taxed again in the hand of the shareholder. If you do not qualify for the DBI then 25%.

Whether or not withholding tax needs to be paid in the country of payment of the dividend depends on:

1. Application of local tax legislation.

2. If withholding tax would be due on the basis of 1) you should then look at the application of the double taxation treaties or the application of European regulations (implemented in local legislation) as you have written above.

Whether there is a dividend income received in the country where the recipient of the income is located is yet another analysis.

14. Winst van het boekjaar voor belastingen

Taxes on results. How much taxes are AB Inbev paying? Zero. They do not pay corporate income tax. Page 32: what are the most important causes why there is a difference between the profit and the taxable profit? Ab Inbev is entitled of a deduction of 2,8 billion dollars, it exceeds their taxable income (income before taxes).

AB Inbev dual function:  Trade function

Only a trade function then the tax deduction would not appear in the books.  Holding function

Huge financial fixed assets: shareholder in other (profitable) companies that pay out dividends to AB inbev.

Akkermans en Van Aaren: holding company: a lot of participation. Same deduction or low taxes in the account of Akkermans en van Aaren. It impacts the effective tax rate. Mix trade or industrial activities with a holding function.

Big chunck of income and profits is being derived from the holding function. They get more dividend income then they are entitled to the DBI. Now 100% deduction, previously a 95% deduction. They have excess DBI: eat up their business profits. They don’t pay taxes and it is completely legal. DBI is a large advantage for companies but Belgium is not unique, the Netherlands have had this for years. If you invest a small amount of money in a company, you can not benefit from this DBI deduction. This IS all perfectly legal tax reduction, has nothing to do with fraud.

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15. Vergoeding van het kapitaal

Is a dividend an expense? It is not an expense, why? A paid out dividend is just a decision of what to do with your profit. Pay it out of reserve it. What is the fiscal life of this dividend? The person that receives the dividend will be taxed. If it’s a company different rules (see above).

QUESTION EXAM: we have a company (Belgium NV) you receive a financial statement and you see that the company from an accounting point of view has no profit. Will this company pay corporate income taxes yes or no? A loss making company can pay taxes. What can be the reason of the loss? Loss is an artificial loss. Tax authorities can adjust your loss in a profit if they do not agree with the value. OR what is not deductible in most cases? Cost. You can give a higher value to your costs. Waardeverminderingen op aandelen  not tax deductible. On accounting loss there can be taxes due.

DBI aftrek: enkel belast bij de uitkerende vennootschap. Bij de ontvangende vennootschap aftrek van het fiscaal resultaat.

(Cross border) Re-organisations and M&A: topic 2.

Parties involved

M&A happen because of different reasons. There are different methods and techniques to be used. Doel van dit hoofdstuk:

- Het identificeren van de kwesties (issues) van bedrijfsovernames:

o Aankoop van aandelen vs. aankoop van activa o Financiering van de overname

- Het identificeren van de fiscale gevolgen van overnames, voor alle betrokken partijen - Uitlijnen van andere methoden betreffende bedrijfsreorganisaties

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Comparing 2 basic scenarios. 2 options if you want to become owner of a company:  Buy the shares

 Interested in the assets  Advantages and disadvantages.

We will mainly consider or assume that Vendor and Bid co are corporations. Shareholder can be an individual or a company. We will not touch upon the aspect of the parties.

There are 3 parties directly involved in the acquisition of the company.

- Target Co = Target company = Centre of the transaction  The company of which the shares or assets will be sold.

- Vendor = Shareholder of Target Co  Physical person or corporation, (vennootschap) that holds the shares of Target Co.

- Bid Co = Company who is interested in acquiring Target Co: either buying the assets of the company Target Co or buying the shares underlying.

An entity (Bid Co) can try to either take over the assets/businesses or to transfer the shares of another entity (Target Co) from the owner of Target Co (Vendor).

The impact on the three parties varies significantly, depending on their status, the form of the business takeover and the jurisdiction(s) (=jurisdiction) in which they are operating.

These three parties are obviously not the only parties involved in an acquisition.

Indirect parties involved

These parties also influence the outcome of the transaction. Depending on the particular circumstances of the transaction, some of the indirect parties have a significant impact on the transaction.

 Tax authorities = Fiscal authorities = the tax administration in countries where the direct parties have been located. If there is a transaction, they put forward if its taxable or not.  Anti – trust agencies: to check that, for example, there are no monopolies or unfair

competitions. They have to bless a friendly take-over.

 Other governmental bodies: majority of the politicians doesn’t even know a certain

company but if an acquisition is done, then the politicians are lining up to claim the success. Also if things go wrong, they want to have their say. They want to open up the M&A. For example: Belgium; Flanders, Antwerp

 Bid Co shareholders: in the interested party there are also shareholder that want to have their say.

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 Unions/employees: most companies have trade unions being active within the organisation if not, then they are represented by unions. If the company is taken over, then the employees are concerned about their job.

 Customers, Creditors: (klanten & schuldeisers)  Brokers, suppliers (makelaars & leveranciers)

Vendor/target considerations: advantages

Exam!!! What is the intention of going to this list of advantages? Goal of the exercise: on the exam there will be a question about advantages or disadvantages from the different parties.  Try to not copy paste the lines. Proving when answering that you know what is all means. What is the meaning of those lines?

In this section the most important advantages and disadvantages for Vendor, Target Co and Bid Co are discussed in a business acquisition (= sale of assets or shares). In ideal circumstances, each of the these considerations should be analysed before a bid is made and it should be taken into account when determining the bid price, (purchase price). But in practice, a bid must sometimes be made unconditional, in the absence of all relevant information, or at a price that does not take into account all of them detailed considerations.

Shares acquisition

Vendor/shareholder of target co that is selling the shares to bid co.

1. Any previous tax liability or other claims are being transferred. (Overdragen van elke eerdere

belastingschuld of andere claims/vorderingen)

When you sell your shares (physical or corporation) and whatever is on the balance sheet or may rise in an audit, any previous or existing or not existing on the balance sheet (future tax liability) will be moved to the new owner. You are no longer liable for the tax liabilities or the future liabilities of

the company when you sell your shares.

o If Bid Co acquires all the shares of Target Co, then transfer of any previous tax liability or other claims (tax liability) to the new owner. Tax liability = belastingschuld of

belastingverplichting

o There are often many hidden liabilities

These are not visible on the balance sheet, but are after a tax audit. The one who buys the shares, (the new owner), is also responsible for the hidden tax liabilities.

o Possibilities to avoid this for Bid co: performing a tax audit.

2. Likelihood of reduced tax on sale (Waarschijnlijkheid van verminderde belasting op de

verkoop.)

Vendor can be a corporation (taxed in corporate income tax) or an individual (taxed in person income tax). We assume the vendor is a Belgian corporation or individual.

o Reduced tax on sale is quite likely in case of transfers of shares

What happens if we sell shares as an individual?

 Shares as hobby, buy shares and six months later you sell them with them gain, normally as an individual you are not taxable.

 If your shareholding is a significant one >25%. If you are selling of an important part of your shares to bid co then you will be taxed at 16,5%. Demonstrate that is almost a professional hobby.

 If you do it on a regular basis and you are taking up a short term loan to buy shares, and you have in your apartment an office and various screens, you are a trader then there is a distinction: you do it a professionalized hobby (speculation). Gain will be taxed at 33%.

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 If it’s no longer a hobby, but your profession: you are a trader of shares then you will be taxed as an individual at our progressive tax rates.

 If you make a loss on the selling of your shares, you won’t be able to deduct it on your tax sheet. What happens if we sell shares as a corporation? What happens with the taxation regime?

Pretty straightforward a few years back then there was an exemption of capital gains: it has changed. Today: a less favourable tax regime.

Make a distinction between 2 categories: Target co has to fulfil some criteria.

 First condition: taxation condition: does it fulfil the normal tax regulation (subject to normal corporate income tax on profit? An ordinary Belgian company).

 Second condition: significance of your investment: if your participation is bigger than EUR 2.500.000 or investment represents 10% or more percent of the share capital of target co.

o > 1 year: no tax due.

o < 1 year: subjected to a special rate in the Belgian income tax: 25% + a sur charge. It will become an effective tax rate of 25,40%.

 If it’s not fulfilled (non significant investment): 29,58%.

What if we realize a capital loss on the sale of shares? Minderwaarden op aandelen: they are not tax deductible. When shareholders sell their shares, we expect a capital gain on shares.

 Previously when you were investing your money as a small in company into shares it was very beneficial, now a day a threshold of 2,5 million is a lot. For investing excess cash in stock trading shares has become very expensive. It has become less attractive.

o But it is not taxed as heavily as the profit on the sale of assets.

3. Transfers existing tax liability or retained earning (overdracht van bestaande

belastinverplichting op ingehouden winsten)

What is the remaining tax liability on retained earnings? What tax is still to be paid on retained earnings.?

o These retained earnings can be found on the balance sheet under "Other shareholder Funds” earnings that have been reserved/restrained and therefore have not yet been distributed as a dividend to the shareholders. We want to take these retained earnings out. (It is not that we sell shares and we see an amount on the balance sheet)

o But if it is later paid out to the shareholders, this must be followed up by the

withholding tax (WHT). This is the case when Vendor wouldn’t sell of the shares but wants a dividend from Target Co.

o The profit/the retained earnings have already been subjected to corporate tax, but has not yet been paid out to shareholders. When paying out the dividend, then again tax (WHT) on payments.

o Allocate profit of the year to retained earnings, then next year our retained earnings have increased. If in one year you need cash, if a company pays out the dividend then they also have to pay withholding tax.

o Bid Co buys shares at market price so you save tax on the retained earnings. Because if you pay out profits, you have to pay withholding tax.

 Normally you pay WHT on reserves, but sales of shares do not pay WHT.  More favourable selling out the shares then giving out the cash by dividends.

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4. Transfer unrealised CGT (capital gain tax) liability on the underlying assets. (Overdracht van

niet-gerealiseerde meerwaarde belastingschuld op de onderliggende activa).

Capital gain tax (CGT). Typical example of situation where this becomes very relevant: MV 500

Building on balance sheet Accounting value: 100

Factory is still used: real estate agent has provided us with the market value of the building namely 500.

Fixed asset is the factory and it has a book value of a 100. I know as an owner that the value is not 100 because I know there are parties that want to buy it for 500. I’m going to take in account the market value when putting a value on our shares.

What is we are selling specific assets? If we sell this factory for example: what happens within the accounts of Target co? You will be taxed on the accounting gain of 400 = corporate income tax. The remaining profit after tax, it will be on the bank account of Target co. If you want it take it out after the merger you still have to pay withholding tax.

Advantage: If we sell the shares, we don’t have to account for the profit in the account of Target co. When selling shares, you don't have to pay taxes! If you sell you shares the assets remain on the balance sheet with their accounting value/book value. Notwithstanding, the value of the building will influence the price of the shares and the gains we will get from it. We will get a higher price and profit. If the new owner a couple of years later, want to sell the fixed asset (factory) the corporate tax on that gain will be for the new owner.

5. Sell all balance sheet liabilities

o By selling the shares, all the liabilities go the owner.

6. Responsibilities for employees and the industrial relations is with new owner.

o If you sell the company, you also sell the people (they move to the new owner as well). Sometimes companies have very unconstructive unions and makes trouble when you want to sell shares of the company. So the responsibility for the workforce is with the new owner.

Vendor/target considerations: advantages: shares

1. Any previous tax liability or other claims are being transferred 2. Likelihood of reduced tax on sale

3. Transfers existing tax liability on retained earnings

4. Transfer unrealised capital gain tax liability on the underlying asset 5. Sell all balance sheet liabilities

6. Responsibilities for employees and the industrial relations is with new owner

Asset acquisition

Bid co is not buying the shares of target co but they are buying assets. You can also buy part of the company, not the whole company (all assets).

1. Higher cash receipt likely (waarschijnlijk een hogere geldontvangts)

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What happens if you sell the shares? You do not only have assets you also have liabilities (1): you sell of everything. But Bid co is only interested in assets. By definition the value needs to be higher, because you buy it without all the liabilities. The bank loans, the debts you have (liabilities)… They stay within Target co, it’s not a net value asset approach.

Tax explanation (2): it will be very visible what bid co wants, so this makes it easier to maximize your

price. So the buyer will pay more to the seller.

If you sell assets, you are going to pay corporate income tax (3) on this asset. Calculate it in when determining the asset price. You will ask I higher price because you still have to pay these taxes.  3 things that you have to take in account when determine the price of the asset.

What will result in an extra attractive touch? When will target co not be taxed on a capital gain? When target co has for example a stock of dividend received deduction, or royalties (excess creditable tax) or a deduction for innovation income. You can set of your capital gain with deductions.

2. May be able to use entity for other purposes

o Empty company to start up other company. You sell the assets of your company and you get the gain and then you can invest your gain in real estate and then you switch to a real estate company.

o Target Co/ Vendor can shelter other activities.

3. May sell only part of the business

As a seller, you can decide which parts you are going to sell and which you do not want to sell

Sherry picking: if you don’t sell the shares, you can start selling parts of the company? The demand

of bid co will have to match your desires. You can sell the parts where you want to get rid of. 4. May retain benefit of favourable contracts.

o Being able to retain the benefits of favourable/interesting contracts 5. May retain tax losses and other tax benefits

We keep the company. We have sold assets and we know that Target co still has tax losses. Use Target co to shelter new activities. Big question mark: can we still use this tax losses or tax benefits

(ovegedragen verliezen)? Vendor is still owning the shares of Target co. Even after accounting for the

capital gains, there are still tax losses carried forward and other deductions in the company.

Empty company with cash, we still have tax losses: use them to offset my rental income (for another activity). You do not pay taxes on the rental income.

o If your company goal was to produce IT-products, then a real estate activity will not match in to the company goal. You have to change your company goal before selling all of the assets. If you change the nature of the business activities or the management, in most countries you lose the tax losses carried forward of the company

o If you shelter an activity in a company that doesn’t fit with your company goal, then your corresponding cost will not be tax deductible in most countries.

o In Belgium it will go. Belgian companies have rather broad company goals. It is feasible when well prepared, changing (broadening) your company goal and introducing a new activity. Tax losses carrier forward are recoverable indefinite in time.

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A benefit in kind on the income statement. It’s what we need to do to make our company happy: a car, a sea side. Calculating a benefit in kind that is taxed in the income tax. No longer the case now they really look at the company goal.

Vendor/target considerations: advantages: assets

1. Higher cash receipt likely

2. May be able to use entity for other purposes 3. May sell only part of the business

4. May retain benefit of favourable contract 5. May retain tax losses and other tax benefits

Vendor/target considerations: disadvantages

Shares acquisition

1. Must dispose of entire business and favourable contracts

o The new owner will dispose of every contract and the whole company.

o Basically, you sell everything, including good business & interesting contracts that are linked to the company.

2. Requirements to give broad indemnities. (verplichting om hoge vergoedingen te geven). o Bid co as the new owner of target co will require indemnities (vergoedingen). You need to

give broad indemnities or you have to foresee guarantees

o You have to give high guarantees to the bidding company, which wants to be able to cover the debts of Target Co. E.g. Doubtful debtors, claims.

3. Transfer tax losses or other tax shelters

o In case Target co has tax features, they follow target co. Potentially, depending on what happens with the company, it will be still Target co under the new shareholder being bid co that will be able to use the tax losses or other tax benefits

o All the tax benefits are being transferred 4. Transfer intellectual property rights.

o They are owned by target co, so they will follow the company. Intangible asset will remain within the company so the new owner will be able to use these in their benefit.

o Patents are also transferred, & buyer is then eligible for patent income deduction. o BUT some founders of companies are personal owners of patents, then the patent is not

transferable and the patent income deduction cannot be claimed.

Vendor/target considerations: disadvantages: shares

1. Must dispose of entire business and favourable contracts 2. Requirements to give broad indemnities

3. Transfer tax losses or other tax shelters 4. Transfer intellectual property rights

Assets acquisition

1. Retain liabilities

Liabilities remain with Target Co.

2. Difficulty in passing profit on sale to shareholders in tax-free manner. (Moeite met het

passeren/doorgeven van de winst op de verkoop aan aandeelhouders op een belastingvrije manier).

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o 25% withholding tax by giving out a dividend to the shareholders.

o Assets deal are in principle not favourable taxed. Not only pay corporate tax on the gains of the asset transfer, but the net tax is still on the bank account. This money isn’t vendor’s yet. If they want to take out the money they can do it by paying it out in dividend, and then they also have to pay withholding taxes.

3. Realise any unrealised gains/deprecation recapture (het realiseren van niet-gerealiseerde

winsten of het “herveroveren” van afschrijvingen).

o If you sell an asset you have to account for the gain: pay taxes on the gain. The gain will be taxed because it is not realised yet.

4. Potential tax liabilities on retained earnings.

o If you book something on the retained earning, it is not yet the shareholders, you still have to pay the withholding tax.

Vendor/target consideration: disadvantages: assets

2. Difficulty in passing profit on sale to shareholders in tax-free manner 3. Realise any unrealised gains/deprecation recapture

4. Potential tax liabilities on retained earnings

Overview

Vendor/target considerations: advantages: shares

Vendor/target considerations: advantages: assets

Vendor/target considerations: disadvantages: shares

Vendor/target consideration: disadvantages: assets

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Bid co considerations: advantages

Shares acquisition

1. Lower capital outlay – purchase net assets only (lagere kapitaaluitgaven, want je koopt enkel

de netto active aan).

o You buy everything: price is going to be determined from the net assets. This results in a lower price to be paid.

2. More likely to be attractive to vendor. (Meer kans om aantrekkelijk te zijn voor de verkoper,

aan een relatief lagere prijs).

o Highly likely that a share deal is more an advantage to vendor, shareholder of target co. That might facilitate the negotiation procedure. Helping Bid co to agree on the transaction. o A seller will not prefer to sell shares if Target Co has a lot of losses. When buying shares you

have no registration obligations. When you buy over shares, it has advantages for the seller and therefore he will be prepared to sell the shares at a lower price than assets.

3. May benefit from tax losses carried forward

If Bid co buys shares form Target co, it may benefit from tax losses carried forward. Not only tax losses carried forward that can be used by bid co also investment deduction, dividend received deduction = tax features of the company. This tax features remain with target co, the new owner can benefit from the tax features. But there is a provision in the law.

Provision: in case the shareholder of the company is being changed, the future tax features of the

company can be questioned by the Belgian tax authorities. Change of shareholder situated in the same consolidation: no problem. In our example it is not in the same group, so not applicable.

 New owner continues the activities and keeps the employees. By maintaining the employment then Target co with the new owner bid co can use the tax features.

 If u take over a company with tax features and I dismiss everybody and change the use of the company than the use of the tax features will not be possible anymore.

In the past you could buy an empty company with tax losses carried forward. = tax features. U could use the tax losses and change the main use of the company, u could start a new company. The price is a percentage of the tax losses. Use tax losses to set of a business. Practice in the 80’s 90’s. Now if you change the business activities of a company, or you maintain the activity but dismiss everyone, you could not use the tax losses carried forward.

= witte boord criminelen.

4. May gain benefit of existing supply or technology contracts (voordelen halen uit de

bestaande leveringscontracten of technologie contracten)

o You can use everything the company owns, when you buy the company. 5. Lower capital duty (lagere kapitaalverplichting dan bij activa).

Capital duty: registration duties. Registratierechten.

What kind of rates of registration duties you know on the Belgian market?

 7% of the market value when you buy your own house for private use. In 2020 6%.  10% of the market value on your second house. If you are not buying a new built house,

there are only taxes on the land price.

 Registration duties on the sale of shares: zero.

Knowing that you have to pay nothing at all when you buy shares, or when you have to pay a maximum 10% when you buy real estate, people try to find way to circumvent the law If you look at the big, expensive houses, a lot of them aren’t owned by real people, but by companies. They shelter the house in a company because of the leverage they get in return.

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Companies took loans, bought villas and paid of the bank’s loan and interest with the return. Part of the villa is depreciated, together with all their other cost (heat, water) were put as a business cost. People now want to get rid off this big villa  Sell asset or shares? They sell the shares: they get rid of all the liabilities. Assume the only asset of the company is the house. As Bid co it is potentially good: there are no registration rights due: zero on a huge value. There aren’t many business

activities. In the past big turnover, now almost zero turn over. No income, only cost and the asset is a house. Or there used to be a house (maybe accounting value is close to zero). If the shares of the company are going to be transferred and the registration duties on this share transfer are zero. If there would not be a transaction of shares but of assets, the registration duties would be 7% and for second home 10%. What will the tax authorities do? They will try to tax the transaction: they can only do it if it is a share transaction but the real object of the sale is the villa. The fact that sale of assets is a disguised a sale of shares. They try to requalify the sale of shares.

o Simple, less fees

When parties do a share transfer it is potentially not only for vendor but also for bid co resulting in less fees, because it is simpler, more easy. In theory true, in practice only partly true. A principle that is an easy transaction: give money and now I’m owner. You do an investigation first. Tax investigation for example whether there are no hidden liabilities or risk laying around  costly investigation that one of the parties or both need to pay. It can be a costly exercise in practice.

Bid co considerations: advantages: shares

1. Lower capital outlay

2. More likely to be attractive to vendor 3. May benefit from tax losses carried forward

4. May gain benefit of existing supply or technology contracts 5. Lower capital duty

Assets acquisition

1. Cost base step up (kostenbasis opvoeren).

o By purchasing tangible fixed assets, the purchase price is shown on the balance sheet and that price is then depreciated over the years up to 0 euro. These depreciations are included as an expense in our result, which means that the profit will fall.

o Basis: for depreciation

o Step: difference between the original book value and the price paid

o In the case of participation (shares). No impact on profit. We don't go to write off shares. 2. Amortise (afschrijven) purchase price

o

You can depreciate assets, not shares  less profit  less tax.

Combine this advantages (1 and 2) together. Part of the balance sheet of target co is a factory: fixed asset. The accounting value (boekwaarde) is 500 and this equals the tax value. Market value is 2000. What may create a difference between accounting value (: value at which the assets appear on the balance sheet of the company.) and tax value of an asset? Certain deprecations and the tax

authorities should agree with them. For example: depreciate the factory in 5 years, very rapidly accounting wise. Economic lifetime of the building is 20.

Now we assume 500 is the purchase prince. New example.

1 2 3 4 5

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20 years: tax wise: 25 per year.

1 2 3 4 5 …. 20

25 25 25 25 25

What will you see? The tax authorities will disagree and do an adjustment. In the tax return, it consists of various parts. On the taxable reserves, first part of the tax return, you will see a box:

overdreven afschrijving or excess depreciations. What happens in the first year? Third year?... fifth

year? The difference between the accounting and the tax depreciations will be added to the profit.

1 0 75 2 75 150 3 150 225 3 225 300 4 225 300 5 300 375 6 375 350

Every year the difference (75) is added to the tax profit during 5 years. Difference between what is in the books and what is acceptable as a deduction. In year 6 your accounting depreciation will be 0, but tax wise you will still depreciate at the rate of 25%. How do you get this 25? This is outside the financial statements.

You decrease your tax reserves with 25. You create outside the books a cost of 25 for the next 15 years.

Bid co has 2 options: buying shares or assets. We assume now that there is an asset with accounting value 500 and market value 2000.

Vendor will determine its price based on the market value of the asset. We are interested in buying the asset, buying the factory. What is going to be the price target co is going to ask for the asset 2000. What is the difference between bid co buying the shares and buying the asset?

Advantage for the buyer of the asset? Let’s assume bid co is a corporation as well. The price is payed: 2000. It will appear in the assets and thus the balance sheet of bid co at market value. The asset will start a new life: 2000 will be depreciated again. Depreciated over the useful economic life time of the asset. Your purchase price, per anon of the depreciation will be added in the expenses.

You pay a price for an asset and you can depreciate it, and this depreciation can be taken into the expenses. If you put a share price on your balance sheet: you can not depreciate it. If you book a reduction on shares in the balance sheets: it is not tax deductible.

3. No liabilities inherited

Only buy what you want. Sherry pick up to the maximum. You don’t take up liabilities or commitments.

4. Easier to rationalise

Because you can choose which assets you want, you think through the whole acquisition. 5. No tax liability on retained earnings

Retained earning remain on the balance sheet of target co. It is a liability for the shareholders of the vendor (target co).

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6. May acquire part of business

All about the sherry picking. You can choose to only take over part of the activity.  We discussed most of the elements last week

Bid co considerations: advantages: assets

1. Cost base step up 2. Amortise purchase price 3. No liabilities inherited 4. Easier to rationalise

5. No tax liability on retained earnings 6. May acquire part of business

Bid Co considerations: disadvantages

Shares

1. Acquire unrealised gains

o You take over taxes on the unrealised capital gains on the sale of assets. The new shareholder acquires the unrealised gains.

o Why potentially a disadvantage? Which part of the balance sheet? When are you obtaining the gains?

We have Target co and bid co has taken over the shares: what happens when you take over the shares? You take over everything potentially also the stuff you do not want. For example, (it happens often): a family owned company with a factory, machines, employers. Somewhere on the balance sheet or very hidden you see a villa in Spain. Bid co is not interested in the villa in Spain, vendor does not want to take it out because he wants to get rid of it, it is yours, take or leave it. If you take over the shares you have to take over the villa as well. A stock quoted company will say ok we do it. What will the new owner do? He will sell it of, get rid of it as soon as possible. Big question: is there potentially a capital gain? Let’s assume that book value is 0 and you sell it of at a market value more than zero so there is gain. Before you can pay out dividend, you have to pay corporate tax on returns. If afterwards there is still a delta to give out a dividend on which withholding tax are due. All the taxes are for the new owner.

2. Liable for previous liabilities (aansprakelijk voor eerdere schulden) o All those liabilities are for the new owner

o You are responsible for all debts and claims, although there are certain procedures in place to prevent this.

3. No write off of purchase price (aandelen kunnen niet worden afgeschreven). o You have bought the shares; you can not depreciate.



Difference with assets! 4. Acquire tax liability on retained earning

o You take over reserves and are therefore obliged to pay withholding tax on this when you pay out a dividend.  Tax on reserves of retained earnings.

Bid co considerations: disadvantages: shares

1. Acquire unrealised gains 2. Liable for previous liabilities 3. No write off of purchase price

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4. Acquire tax liability on retained earning

Assets

1. Need to renegotiate supply employment and technology (Noodzaak om opnieuw te

onderhandelen over de levering, de werkgelegenheid en technologie).

o If you buy assets. It’s momentum where strong parties can re-discuss their terms and contacts.

2. Higher capital outlay (hogere kapitaaluitgave)

o If its an asset deal: higher price: when you sell of asset you know that you are going to pay corporate income tax on the gain: take in an account when determine the price.

3. Unattractive to vendor

o For the selling parties, the sale of assets is less interesting than the sale of shares. So they are going to ask for a higher price.

o Not in all cases. Example: capital gain: Target co may have had tax losses carried forward. Not always the case that you have to pay taxes on the capital gain. As bid co, need to get hold of the tax position/agenda of target co when it sells of assets

4. High transfer taxes

o High registration duties. Certain assets: high capital or registration duties are due. 5. Acquisition goodwill

o Business is taken over by an asset deal & goodwill is being purchased, accounting profits will be impacted. Because of depreciation or appreciation.

Disadvantage about acquiring goodwill and what has it to do with impacting the accounting profits? If you take over a business: what is goodwill? The intangible value of experience for example. You buy goodwill what will happen at the level of Bid co? It will be activated and then depreciated. Depreciated from accounting point of view.

o By consequence: can decrease Bid Co accounting profit

Advantage: you pay less taxes. If the shareholders are used to receiving an annual dividend, the annual dividend may (potentially) be impacted negatively by depreciating the goodwill from an accounting point of view.

Big question? Whether depreciations on goodwill are deductible? Not in every country they are tax deductible. Shelter the goodwill where you can depreciate the asset and put it on a balance sheet in a country where this deprecation is accepted from a corporate income point of view. They can choose which group entity is going to buy the goodwill.  make sure it is in a country where it is deductible.

Bid co considerations: disadvantages: assets

1. Need to renegotiate supply 2. Higher capital outlay 3. Unattractive to vendor 4. High transfer taxes 5. Acquisition goodwill

Overview

Bid co considerations: advantages: shares

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Bid co considerations: advantages: assets

Bid co considerations: disadvantages: shares

Bid co considerations: disadvantages: assets

Overview

Vendor/target considerations: advantages: shares

Vendor/target considerations: advantages: assets

Vendor/target considerations: disadvantages: shares

Vendor/target consideration: disadvantages: assets

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Bid co considerations: advantages: shares

1. Lower capital outlay

Bid co considerations: advantages: assets

Bid co considerations: disadvantages: shares

Bid co considerations: disadvantages: assets

Acquisition of shares by Bid co.

Tax liabilities of target Co? Undisclosed liabilities

o Once the shares of Target Co. have been acquired, Bid Co. has full responsibility for the obligations of Target Co.

Target co has potentially tax liabilities potentially on the balance sheet (taxes to be paid) as well as hidden liabilities (future liabilities for example) future or transfer pricing audits.

In case of a share deal you get to know of all the tax labilities that the company has, that’s the theory. In reality when you buy shares of a company you want to have a guarantee that you are not going to have liabilities especially the hidden, undisclosed (not referred to in the books) liabilities. You need to protect yourself from them.

How is Bid Co going to try to do this? 3 ways: in most cases a combination of these 3 approaches. 1. You can go to the tax authorities and ask for a tax clearance. Are there any open tax

liabilities? Ask for Certificate: this has only limited value.

o Potential buyers can go to the tax authorities and ask for tax clearances. What’s the relevance of your company being located in the big or small cities; there are companies that are to small to have been audited. What is the value of such a tax clearance if they have never carried out a tax audit?

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Sometimes people give tax authorities a call: do me a favour; a potential client, target co, the shares, are going to be potentially bought. Announce a tax audit. So that afterwards, we know that the recent 2 years are being audited so that the liabilities are no longer hidden.

This is an other form of tax clearance: call tax office for an audit. Order an audit.

2. Ask for a due diligence (= boekenonderzoek) to review tax matters – would not rely on alone.

o Ask a third party (e.g. audit company, tax specialists) to perform a diligence to review the books and records of Target Co, together with the previous tax returns to determine whether the taxation matters have been properly dealt with and tax liabilities are reasonably

provided for.

What is in the books, is that a correct reflection of the reality? Auditor to check this. Are there any liabilities against third parties?

Order tax due diligence. Searching extra information.

Purpose of a due diligence? Not only trying to get more certainty. More pragmatic: know how much taxes you will be paying in the future.

Vendor will maybe already have a price, that price is the start of position. The purpose of this due diligence is not only to get certainty about what is on the table. But also to get the price that is being asked down. If vendor asks 100.000 but if due diligence shows there’s a hidden tax liability of

250.000, then they try to get the price down.

3. More legal protection: indemnity clauses in the sale agreement.

Shares transfer is subject of a sale agreement and we have an indemnity clause foreseen in the sale agreement. You ask for 100.000. but our due diligence shows this 25.000 tax liability. Let’s agree that I pay you already 75.000.. So 25.000. being the difference we put on an escrow account on which the 25 thousand is being paid by bid co, but it can only be taking out of the account when both Vendor and Bid co agree on getting out the money.

25 thousand is not released at once but statue of limitation: tax authorities have a specific period of time to audit a company to increase the taxes.

Statue of limitation in Belgium: Target co closes 31/12/2019 Financial year 2019

Assessment year 2020.

Retention of part of sales price until statue of limitation expires.

o Normal assessment period is 3 years starting 1/1/2020 till the 31/12/2022. In practice a little bit shorter because a thirty days’ reply for tax audit.

o 7 years: in case of fraud. That’s why due diligence is interesting, to see if the company is committing fraud. If you are still interested in buying the company, the money will say on the escrow account for 7 years.

o In case target co has always generated losses. If you are acquiring a loss making company, you have to be very careful. The Belgian tax authorities may adjust the amount of tax losses carrier forward: almost unlimited in time. Once it achieves profit and deduct the tax carrier forward: they may look at the full time in which tax losses were being build up.

 three ways to protect yourself from hidden liabilities and often a combination of all tree.

Tax losses and other tax benefits of Target Co

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- Other taks benfits may also be affected: foreign and domestic taks credits, export incentives, etc.

- If Vendor/Target Co are co-operative, may be pre-acquisition steps to preserve or utilize tax benefits which may otherwise expire.

What happens if a company has tax features? Tax losses carried forward, dib deduction,… What happens if Target co is taken over by Bid co?  Change of ownership. If there is a change of ownership you have to consider domestic tax law to see what the impact is. In Belgium there is a provision that says: when there is a change of ownership, outside the consolidation parameters, which is normally the case namely a third party. Target co can no longer use these tax features unless Target co can prove that there is an economic need. For instance: Target co implies no change of activity and the level of employment is kept at the same level. If you take over and keep everybody on board then Target co can further use the tax features.

Last paragraph: it’s not entirely one to one linked with the change of ownership and the risk of tax features being lost. But contrary to what is applicable in Belgium, there are countries where tax losses carried forward cannot be carried forward in time. In Belgium there is no expiration date on

the carry forward date. For this example the losses may not be transferred to next year. The transfer

is limited in time. Target co has tax losses that expire next year.

Tax losses risking to expire: what can be a pre-acquisition step that Target co and Vendor co could take in order to preserve this tax benefits? Bid co is also interested in these tax losses carried forward, but the tax features will expire. Tax losses are no longer available because the use of losses is limited in time (legal restraints). Not because there is a change of ownership. So what could they do? They are in a share deal. Pre-acquisition transaction/step: suppose 2019: transfer of ownership in 2020: you could for instance say: let’s sell of a building or a warehouse. We realise a capital gain and that capital gain is set off by the tax losses that are still available in 2019. We are not paying taxes on this capital gain because we have enough tax losses to eat up the capital gain. The rent kicks in, pre-acquisition sale of the building. Building is owned by Bid co, then after the sale Bid co will rent out this building to Target co. We are no longer able to use the tax losses because they have already been eaten up. Depreciation of the building: this will eat up the rental income, again if it’s well scheduled no or limited tax. What do we have at the level of Target co? Target co is going to pay rental cost to the new owner (Bid co), if it is a market rent, the rental cost is going to be tax deductible. Every year we have a cost. We create an extra advantage for target co. Tax beneficial. BIG BUT: What can be a deal breaker? Definitely in Belgium if we sell of a warehouse: registration duties. If you sell on an asset you have to consider registration duties. In Belgium these duties are very high. This can potentially be a deal breaker.

Tax transfers

Lower rates of stamp duty (a taks that is levied on documents) or transfer tax may apply to share transfers (lagere tarieven van het zegelrecht (stamp duty) of overdrachtsbelasting (transfer tax) kan

gelden voor aandelentransfers)

Share liability to duties with vendor?

Cross-border transactions – duties in more than 1 jurisdiction

 What is typically for a transfer of shares? Normally subjected to no transfer taxes (Belgium) or a lower rate of transfer taxes because not subjected to registration duties. Example of real estate company, villa in Brasschaat: see above. Even in case of a share deal you need to consider: are we really in a country where there is no or low transfer taxes on the share transfer?

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 If there is a liability  part of negotiation process.

 Cross border transactions: transfer of shares: do not forget to consider where registration duties are due. Once he had to advice a client that bought a Belgian company, but the real estate was located in Spain. Registration duty was due because transferring shares of a company that had real estate in Spain.



You can pay transfer in tax, normally no transfer tax in Belgium.



Consider potential application of registration duties on the underlying asset in other countries.



Investigate!!

Sales of shares by vendor

Relevant jurisdiction: residence

 Vendor jurisdiction  Target’s jurisdiction

 Jurisdiction where the sale took place

Capital gains tax exemption when participating privilege/dividends received deduction applies in some countries

CGT planning: presale step  Presale dividend Relevant jurisdiction: residence

o Vendor jurisdiction = country where the vendor (persoon of bedrijf) is located o Country where the target is located

o Country/place where the sale took place

 When transferring shares of a company  consider the possibility of a cross-border transaction

Which country is able to tax the capital gains which are realised by vendor? You need to (in case of a cross border transfer of shares) investigate, not only in the country where vendor is located. But in case of a cross border set up also consider the law in the country where target is located.

Suppose: parties agree to register the sale of a share in Swiss. Fixed date of the transfer. Transfer is being registered in Swiss. Does Swiss law for see any taxation law regarding this case? Analysis of all the countries.

 Capital gains of shares. Whether capital gains on shares are tax exempted or not, it is often linked whether target co would pay out a dividend, is this dividend eligible for the DIB-deduction?

 CGT: capital gain tax planning: presale step

- If the Vendor is taxable in a jurisdiction which taxes capital gains, it may be tax efficient for Target Co to pay out dividends to Vendor prior to a sale of Target’s shares.

Pre-sale step: paying out a dividend before the sale of the shares of target co. In which case will you claim as much dividend as possible out of target co as a pre-sale step?

Belgium withholding tax rate on dividends is 30%. Knowing that, when would you consider as a

pre-sale step a pre-pre-sale dividend? Vendor deciding I’m the shareholder of target co and before I sell out

my shares to bid co, I’m going to get a dividend out of target co as big as possible.

- The pre-sale dividend will reduce the sale proceeds of Vendor’s shares pro rata and will therefore also reduce the taxable gain of Vendor pro rata, unless the dividend has a direct link to the cost base.

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- Important to consider the withholding tax position on dividends of Vendor. In which case can this be a favourable decision for vendor? When the tax on capital gain is higher than the withholding tax rate on dividends. Not the case in Belgium: because it is probably not going to be higher than 30%.

It can always be in the law that you also need to consider the tax losses of Target co. Country where Target co is located is also able to tax. If a cross border is considered and 3 countries are involved then do the analysis of all the 3 companies in the 3 countries. There is no logic in fiscalism. You always have to do your analysis in each of the countries involved.

Target – Shares sold to Bid co

Tax losses/tax credits

 Availability of tax losses and tax credits/deductions may be affected by changes in (beneficial) ownership (as already discussed).

Residence status

 Cross-border change in shareholding may alter the effective management and control and residence status.

E.g. if a company is no longer located in Belgium, than it is bankrupt for the standpoint of the tax authorities.

Relation between residence status of Target co and the new owner Bid co. Target co is taken over by Bid co, how can this impact the residence status of Target co? Target co is a typical family owned Flemish family. Bid co is a multinational, located far away in the USA. What could happen? Country where Bid co is located can claim taxes. What can happen that may trigger the country to claim the taxes? Board of directors was first filled with Flemish family members and now they kick them out and replace them with “our” people. If this “our people” are no longer Belgian, tax authorities will look into it. Tax authorities see that in the Bid co company mister X is located in the USA. Is this still a Belgian Company? Or can we claim taxing rights, because the majority of the board of directors is residing other else.

Acquisition of assets by Bid co

Allocation of purchase price – tax relief on assets acquired Transfer taxes

Other issues

Allocation of purchase price – tax relief on assets acquired

Major consideration for Bid co: to maximize tax relief on assets acquired (het maximaliseren van de

belastingvermindering op de verworven activa)

 Acquisition of assets. We are touching upon the features of an asset deal. Buying the assets of a company or group. Sometimes these assets are located in various spots. There is a price being agreed upon for the assets. The purchasing price needs to be allocated over the various assets involved. Here there is a small interaction with taxes, up to a certain degree, the allocation can be influenced by taxes. What will Bid co, as they buyer of the assets, try to achieve? One of the advantages of an asset deal for Bid co: cost base step up and

deprecating the cost base. The tax goal of Bid co is to pay a price, preferably, they will have the cost base being depreciated up to a maximum and as quick as possible.