• Types of Tax Benefits • Reduction of subpart F income • Tax-efficient transfer pricing • Consolidation of U.S. subsidiaries into one tax group • Creation of efficient tax treaty network
Presenter
Presentation Notes
Source: “Examples of the types of tax benefits that may be created as a result of post-acquisition restructuring include reduction of subpart F income (i.e., phantom income that is taxed to the U.S. shareholders of controlled foreign corporations); tax-efficient transfer pricing (i.e., the economic allocation of income and expenses in tax jurisdictions that are more favorable to managing a company’s overall effective tax rate as supported by legal and accounting positions); and consolidation of U.S. subsidiaries into one tax group that allows for taxable losses of one subsidiary to offset taxable income of another subsidiary, while allowing all members of the tax group to share certain tax attributes.” “Post-acquisition tax structuring may also create an efficient tax treaty network that allows withholding tax on payments from domestic or foreign companies to their foreign or domestic parents or affiliates to be reduced or entirely eliminated under the terms of a tax treaty between the jurisdictions in which the two affiliated companies are domiciled. Creating an efficient structure that allows for favorable usage of a tax treaty network can effectively mitigate double taxation, reduce cash tax outlays, and protect affiliated companies from unwittingly establishing tax nexus in foreign jurisdictions. A beneficial tax treaty network also allows U.S. companies to make-tax efficient interest payments to foreign affiliates, which reduces a U.S. company’s U.S. tax liability.”
TAX COMPLIANCE & POST-ACQUISITION TAX AUDITS
• Strategy to handle and defend an audit: • Preemptive discussion of tax issues • Early communication among relevant stakeholders • Tax risk management controls • Tax reporting • Tax compliance procedures and processes
Presenter
Presentation Notes
COMPENSATION AND BENEFITS
• Deferred equity payouts and IRC Section 409A income recognition issues
• Seek counsel and guidance • Determine valuation methodology in the acquisition
agreement and secure independent valuation expert • 401(k) Compliance • Affordable Care Act regulations
Presenter
Presentation Notes
“Deferred equity payouts to senior executives or target equity holders continue to remain a useful approach to keeping key target employees’ skin in the game. Sometimes the underlying equity component of the payout is based on the value of the entity, division or business unit that was acquired, as opposed to the overall equity value of the acquiring company. In essence, the underlying equity component is akin to a type of tracking stock that must be valued at various triggering points during the life of the payout (and such payments are generally made at the same time equity payouts are made to other equity holders). These types of deferred equity payouts are fraught with IRC Section 409A income recognition issues (sometimes creating the unintended consequence of phantom income and excise taxes to the key employee) that need to be addressed in general terms during the pre-acquisition stage. However, the devil is always in the details, and just as importantly, the post-acquisition integration issues that arise with these types of deferred payouts need to be addressed immediately after closing. IRC Section 409A compliance is a critical element to ensuring tax-deferred treatment of the deferred equity payouts to the key employees. Needless to say, if the 409A compliance is not correctly implemented during the integration phase, key employees become distracted and discouraged by the thought of a looming large tax liability (and no cash to pay it). Correct implementation frequently requires the engagement of compensation and benefits counsel immediately after closing, so that traps for the unwary are not triggered. Continuing counsel and guidance from compensation and benefits counsel is necessary during the early stages of integration and through the first vesting period in order to ensure that the details of the deferred equity payout qualify for tax deferral as intended. Additionally, a source of contention (or at least tension) frequently arises during the early part of the integration phase when the acquirer and key target employees discuss the proper valuation methodology in connection with the above-noted notional equity tracking mechanism… [Place] firm parameters around valuation into the acquisition agreement, securing the use of independent valuation expert to determine the valuation, and engaging with such expert immediately after closing.”
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