It is not uncommon for corporate lawyers leading sell side M&A transactions to be told at the outset by clients that they are taking their own tax advice, and do not require support beyond the execution of the corporate deal.
However, it is all too common for such a position to unravel once a deal negotiation starts to gather pace with clients found lacking in the specialist input needed to assist the corporate team in the successful execution of the sale.
These problems can be avoided at the outset of the transaction by taking a moment to explore with the client whether they truly do have their own specialist able to deal with the transaction’s requirements, or, as is often the case, their long-standing accountant or tax advisor would welcome some additional input on transactions’ tax issues.
Below is a Corporate Lawyer checklist to help ascertain whether key tax issues are being sufficiently covered.
Clients obtaining their own tax advice ?
Corporate Lawyer Checklist
| Corporate lawyer should consider these questions | Corporate lawyer should ask the clients if they have received tax advice on these issues (example and not exhaustive) |
|---|---|
| If sellers are individuals, are they UK resident? Yes ☐ No ☐ | Non-UK residents need specific tax advice on interactions of other jurisdictions and UK tax laws. |
| Will they be receiving cash? Yes ☐ No ☐ | Tax charges apply on receipt of cash and opportunities for planning should be considered. |
| Will they receive all cash on completion? Yes ☐ No ☐ | If not, tax advice on implications of deferred consideration risks is necessary. Drafting of SPA is key here. |
| Is there any non-cash consideration? Yes ☐ No ☐ | Tax advice needed on share-for-share / loan note implications and interacting with CGT or exemptions and reliefs. |
| Is there an earn-out? Yes ☐ No ☐ | Tax advice to avoid pitfalls. Drafting of HoTs and SPA important here. |
| Has a Business Asset Disposal Relief Report been prepared? Yes ☐ No ☐ | Requirements can often be missed if detailed advice not obtained. |
| Are the sellers also directors or employees of target company? Yes ☐ No ☐ | Complex area of employment related securities carries large income tax risks. The position here is linked to the DD process. |
| Are any selling entities corporates or other legal structures? Yes ☐ No ☐ | Special rules on Substantial Shareholding Exemption and post-sale planning must be considered. |
| Have the sellers had IHT protection advice re cash about to be received? Yes ☐ No ☐ | IHT problems can be potentially avoided if advice taken before sale. This impacts corporate documentation. |
| Is sale proceeds to be invested in other assets? Yes ☐ No ☐ | Opportunity for tax planning. Have the clients had advice on this? |
Contact info@winslows.co.uk for details of transactional Tax Support options.