Knowing your tax obligations as the owner of your IT firm is critically important.
Whatever type of transaction you’re contemplating, be it acquisition, merger, or joint venture, there is tons to understand on the tax front.
Which is why we have lots say about tax consultants.
Tax advisers can help you settle many of the tax obligations that are part of selling any IT services firm. There are a lot of tax obligations that need to be assessed in the process of selling or buying.
For instance, your cash flow needs to be optimized. Selling your firm has to be structured for optimizing your net cash flows. When working with an M&A firm and tax specialist, the focus should be on saving you money and ensuring the overall finances are as efficient as possible.
When selling, you need to be absolutely sure that your tax adviser checks the following boxes:
- Gives you sound tax-structuring advice.
- Produces tax wisdom based on your business valuation.
- Solves any tax challenges with international tax advice on cross-border transactions.
- Focuses on strategic growth and profitability priorities
There also has to be an analysis of tax issues relevant to you (the seller), the buyer and other M&A transaction parties. This process is a key part of assessing overall feasibility and post-reorganization cash flows.
Selling Your IT Services Firm: Tax Structuring
For example, tax regarding corporate reorganization falls under the classifications of “qualified” and “non-qualified” in M&A transactions.
This is important because certain gains may not be subject to any immediate taxation based on how you’re classified — that is, corporate divisions, contributions in kind, distributions in kind and share transfers.
Tax structuring objectives of the seller and the buyer may also differ. While a tax-free reorganization is in many cases optimal from the perspective of the seller, the seller and buyer may come to an agreement that a tax-free reorganization is less favorable overall.
Selling Your IT Services Firm: Tax Due Diligence
This is vital in detecting potential tax risks that might require mitigation.
A tax analysis shouldn’t be limited to a review of the tax returns.
Instead, a comprehensive analysis of the tax attributes needs to be carried out, including taxation status, business flows, organizational structure, location, industry and so on.
Tax risks identified through a tax due diligence process may be a significant consideration in negotiating provisions of the sale and purchase agreement.