The choice between an asset deal and a share deal is a crucial decision in any M&A transaction, with tax considerations often the deciding factor. Both transaction structures offer different tax benefits, depending on the specific circumstances of buyer and seller.
A thorough analysis of the tax implications is essential to optimise the transaction structure and maximise value for all parties involved. The right choice can generate significant tax savings and strengthen future tax positions.
What is the difference between an asset deal and a share deal?
An asset deal involves the sale of specific assets and liabilities of a company, while a share deal involves the sale of shares in the legal entity itself. In an asset deal, the original company remains and only selected business units are transferred.
In a share deal, the buyer acquires all rights and obligations attached to the shareholding, including historical risks and contingent liabilities. The buyer steps into the seller's shoes, so to speak, and takes over the entire legal entity, with all its features.
An asset deal offers more flexibility in the selection of assets to be acquired. Buyers can select specific assets and exclude certain liabilities, which facilitates risk management. However, this structure requires more administration and can be more complex in execution.
What tax advantages does an asset deal offer over a share deal?
Asset deals offer buyers a step-up in the book value of acquired assets to the purchase price paid, allowing for higher depreciation and a lower future tax burden. This benefit is particularly valuable in transactions with significant goodwill components.
The step-up allows for higher depreciation on tangible and intangible assets, reducing taxable profits in future years. For sellers, an asset deal can be advantageous when the company has loss-offset opportunities that would otherwise be lost in a share deal.
Share deals, on the other hand, benefit from the participation exemption upon holding at least 5%, which may exempt capital gains from corporate income tax. However, this exemption only applies if one of three tests is met: the justification test, the possession test or the possession test.
Asset deals do have to take into account transfer tax of 10.4% on Dutch real estate, which may increase the total transaction costs. This tax does not apply in share deals, provided certain conditions are met.
When is an asset deal more fiscally attractive to the buyer?
Asset deals are attractive for buyers for tax purposes when the purchase price significantly exceeds the book value of the assets, because the step-up generates substantial future depreciation benefits. This is especially true in acquisitions with high goodwill components or undervalued assets.
Buyers with a high tax burden take maximum advantage of the increased depreciation resulting from the step-up. The ability to amortise goodwill over 10 years can significantly reduce the effective tax burden, especially when combined with other deductible expenses.
An asset deal also offers advantages when the target company has tax losses that are not usable by the buyer. In a share deal, these losses would come along but may not be offsettable, while an asset deal allows for a clean start.
For buyers looking to selectively acquire assets and avoid certain liabilities, an asset deal offers the flexibility to retroactive effect apply where it is fiscally advantageous.
How does the seller's tax position influence the choice between asset and share deal?
The seller's tax position largely determines which transaction structure is optimal. Sellers with substantial tax losses are better off opting for an asset deal to still utilise these losses, while sellers who qualify for the participation exemption often benefit from a share deal.
In a share deal, sellers can benefit from the participation exemption, which allows capital gains to be wholly or largely tax-free. However, this requires meeting the justification test (active involvement), the possession test (at least 10% effective tax at the subsidiary) or the possession test (less than 70% of free investments).
Sellers with a fiscal unity should consider the impact on loss-offset opportunities. An asset deal may be advantageous when losses can still be offset within the group, while a share deal may limit these opportunities.
The conditional withholding tax of 25.8% applicable to dividends to low-tax jurisdictions since 1 January 2024 may affect the choice when the seller is domiciled in such a jurisdiction.
What role does goodwill amortisation play in the choice of an asset deal?
Goodwill amortisation is a crucial factor in the tax attractiveness of asset deals, as buyers can amortise the goodwill component over 10 years at the prevailing corporate tax rate of 25.8%. This depreciation generates substantial tax benefits that reduce the effective purchase price.
In transactions where goodwill is a significant part of the purchase price, the tax value of the amortisation option can justify the additional complexity and cost of an asset deal. The annual amortisation reduces taxable profits and thus improves the acquirer's cash flow.
In a share deal, goodwill remains on the target company's balance sheet at historical value, with no possibility of step-up or increased depreciation. This means that the tax benefit of goodwill amortisation is lost to the buyer.
The earnings-stripping rules can limit the deductibility of financing costs to a maximum of 30% of EBITDA, with a threshold of €1 million always remaining deductible. This limitation must be factored into the overall tax optimisation.
How do loss compensation options influence the choice of transaction structure?
Loss offset options have a direct impact on the choice of the optimal deal structure. In a share deal, tax losses are retained by the target company, but may be mitigated by changes in ownership, while an asset deal leaves these losses with the seller, where they may be better utilised.
If the target company has substantial loss carryforwards, a share deal may be advantageous, provided the losses remain usable after acquisition. The going concern requirement requires that the company continue the same activities and that there is no substantial change in ownership.
For sellers with loss-offset opportunities, an asset deal can be attractive because the losses remain with the selling entity and can be offset against the capital gain from the asset deal. This can significantly reduce the seller's overall tax burden.
Tax unity rules play an important role in loss offsetting. Horizontal loss offsetting is possible within a tax unity, which increases flexibility in structuring. The expected new group regime may further expand these possibilities.
Choosing between an asset deal and a share deal requires careful consideration of all tax aspects, in conjunction with the specific circumstances of both parties. Professional guidance from experienced M&A advisers is essential to identify the optimal structure and maximise tax benefits. For a thorough analysis of your specific situation, please contact include for a comprehensive assessment of tax optimisation options.
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