When considering whether to purchase a business, the implications of tax compliance and historical tax exposures on earnings would need to be weighed. Due diligence requires an understanding of the expected future tax burden (based on analysis of historical tax compliance) that, in turn, would be incorporated into the valuation model and adjusted in the purchase price.
Historical tax liabilities can be “left” with the seller through an asset deal. The entire business transfer (EBT) scheme allows, in certain circumstances, assets to be transferred in a tax neutral manner.
However, an asset deal is not always practical—for example, licensing issues, tax and transaction costs, implementation timeframe, and implications of the overall deal timing may affect whether an asset deal is the best route. In instances when an asset deal is not possible, seeking appropriate tax indemnities that are backed by a deferment of purchase consideration is a commonly used approach. Estimating the magnitude of the exposure is a key step in determining the size of the deferment.
For sellers, an early understanding of tax compliance problems inherent in the business can help in planning certain mitigation strategies as well as to drive a more productive conversation with the buyer and contribute to a successful deal outcome. Various investment incentives provided by the Thai Board of Investment—including tax benefits granted under the International Business Centre (IBC) regime—may improve overall post-tax return of investment if structured appropriately.
Although tax exposure is only one of the key concerns in M&A deals in Thailand, it does not need to become a “deal breaker.” Robust tax due diligence, proper deal structuring, incorporation of identified tax liabilities into the bid price, and early negotiations with the seller can help the parties succeed with the M&A deal.
Read a 2019 report prepared by the KPMG member firm in Thailand
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