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Transaction Tax

Not only may a new formation of a company, but also the acquisition of an existing company be an option to expand into a foreign country. Once the decision has been made as to a target company, a careful tax due diligence has to be done, which uncovers fiscal risks of the impending transaction, and avoids the realization of such risks to the extent possible.

It has to be checked whether fiscal dues exist from the past for which the acquirer may be held liable. Considering the circumstances, the purchase price may be assessed in such a way that fiscal loss carryovers that have been accumulated at the target company can be used by the acquirer in the future; in that case it has to be made sure that such loss use can be legally done. Possibly a cross-border loss use may be considered, i.e. a set-off with domestic revenues of the acquirer. Furthermore, already in advance of the acquisition of shares of foreign companies it should always be considered how a possible profit out of a later disposition of the respective shares is being taxed on the investor’s side, and whether in this context there are fiscal creative possibilities.

Not only may a new formation of a company, but also the acquisition of an existing company be an option to expand into a foreign country. Once the decision has been made as to a target company, a careful tax due diligence has to be done, which uncovers fiscal risks of the impending transaction, and avoids the realization of such risks to the possible extent.

It has to be checked whether fiscal dues from the past exist for which the acquirer may be held liable. Considering the circumstances, the purchase price may be assessed in such a way that fiscal loss carryovers that have been accumulated at the target company can be used by the acquirer in the future; in that case it has to be made sure that such loss use can be legally done. Possibly a cross-border loss use may be considered, i.e. a set-off with domestic revenues of the acquirer. Furthermore, already in advance of the acquisition of shares of foreign companies it should always be considered how a possible profit out of a later disposition of the respective shares is being taxed on the investor’s side, and whether in this context there are fiscal creative possibilities. 

As a rule, there are two alternatives how to realize a cross-border investment in the target country that requires a permanent physical presence abroad: For one, an independent corporation may be established as a subsidiary, or, for another, a dependent permanent business establishment may be maintained.

Tax reasons, if nothing else, may tip the balance for one or the other alternative. We will perform an assessment for you by comparing the tax ratio of both kinds of investments in the respective target country. At the same time we will keep in mind what other decision criteria may be important for you to make a choice towards an engagement either in the form of a subsidiary or a dependent permanent business establishment.

Your Expert Contact

Dr. Thomas Wülfing
Founder and President
thomas.wuelfing@germela.com
+49 40 284 84 04 00
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