2020 M&A Forecast - Tax: M&A in the IRD's spotlight

This time last year, we were debating the likelihood of
a capital gains tax being introduced. Despite that being
vetoed, other aspects of the Tax Working Group’s
report are being implemented by IRD, including, in 2020,
proposals that may have a significant impact on asset sales.

IRD is proposing that parties to asset sale transactions be
required to adopt consistent purchase price allocations
based on market values.

In December 2019, IRD released a paper seeking feedback
on prescriptive new rules that, if implemented, will
impact M&A negotiations and may require early disclosure
of transactions to IRD.

While the natural tension between a vendor and a
purchaser should generate a purchase price allocation
that represents market values, that tension does not
always exist, and allocations are often documented at
a high level.

To address this, IRD is proposing that the parties
agree a market value for each asset. Where that is not
achieved, the vendor will have the right to determine
the allocation that must be adopted by both parties. If
the vendor does not disclose an allocation to the
purchaser within three months of completion, the
purchaser may instead determine the allocation for
both parties. In either of these instances, a copy of the
allocation must be provided to IRD.

The proposals are weighted in favour of vendors
who, by default, would determine the purchase price
allocation if the parties cannot agree. Purchasers
would therefore need to ensure that they allow longer
to negotiate purchase price allocations.

Submissions on the proposals close on 14 February
2020 and it’s expected that any amendments will be
included in a tax Bill in the first half of 2020.

Read the Full Merger and Acquisition Forecast

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