Tax Planning Skills In Mergers And Acquisitions

The different payment methods of the merged company to the merged company will bring different ways to deal with the income tax, including whether the merged company can pay taxes on the pfer proceeds, whether the losses can be made up, the dividends discounted by the merged companies to the merged companies, and the depreciation of the asset appreciation part.

A company hopes to compare the two schemes to find the best way of tax planning.

Suppose that after the merger, the stock price of a company remains unchanged, without considering other factors, a comparison can be made from the perspective of cash outflow.

[plan 1] the Circular of the State Administration of Taxation on the issue of income tax related to the merger of enterprises ([2000]119) stipulates that when enterprises are merged, the merged enterprises should normally consider pferring and disposing of all assets according to fair value, calculating the pfer of assets and paying income tax according to law.

The losses in the previous year of the merged enterprises shall not be pferred to the merged enterprises to make up for them.

The merged enterprise accepts the assets of the merged enterprise, and when calculating the tax, it can determine the cost according to the value recognized by the appraisal.

The ownership of the merged enterprise by the shareholders of the merged enterprise is regarded as the allocation of liquidation.

Therefore, the tax related issues of scheme 2 should be dealt with as follows: 1. the amount of non equity payment is greater than the 20% of the par value of the paid shares; B enterprises should pay income tax on the pfer income [(150 x 3+100) -500] x 0.25=12.5 (10000 yuan); 2. a company can assess the tax cost according to the assessed value of the assignee assets; the value-added part can achieve income tax every year in the depreciation period (5 years) [(550-500) /5] x 0.25=2.5 (10000 yuan); 3. a company does not make up for the loss of the company last year.

The present dividend value of a company's future dividend is as follows:

1., first years is (900 x 0.7+2.5-16.) x 75% * 150/2000 * 0.9091=30.12 (10000 yuan);

2., from second to fifth years, it is (900 * 0.67+2.) x 75% x 150/2000 * (3.7908-0.9091) =98.15 (10000 yuan), [Note: (p/ a, 10%, 5) =3.908, (p/ a, 10%, 4) =3.699, (p/ a, 10%, 1) =0.9091)];

3. total in the following year: (900 x 0.67 x 0.75 x 150/2000) /10% * 0.6209=210.6 (10000 yuan), [Note: (p/s, 10%, 5) =0.209].

The cash flow value of a company's merger with a company is 100+12.+30.12+98.5+210.=451.7 (10000 yuan).

[plan 2] the Circular of the State Administration of Taxation on the issue of income tax related to the merger of enterprises ([2000]119) stipulates that in the purchase price paid by the merged enterprise to the merged enterprise or its shareholders, except cash, securities and other assets (hereinafter referred to as non equity payments) other than the shares of the merged enterprises, the value of the equity value of the shares (or the book value of the capital stock paid) shall be 20%, and the tax authorities can confirm the following items by the tax authorities for verification and confirmation.

All the enterprise income tax items previously consolidated by the merged enterprises shall be borne by the merged enterprises. If the losses of the previous year do not exceed the statutory compensation period, the combined enterprises shall continue to make up for the income that is related to the assets of the merged enterprises in accordance with the regulations.

The shareholders of a merged enterprise shall exchange the shares of the merged company (hereinafter referred to as the old stock) with the shares held by the original merged enterprise (hereinafter referred to as the "new shares"), and shall not be regarded as selling the old shares, but depending on the purchase of new shares.

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The cost of a shareholder's replacement of new shares shall be determined on the basis of the cost of the old shares held by him, but the total amount of non equity payments paid by the shareholders of the merged enterprise without the exchange of new shares shall be regarded as the pfer of the old shares held by them.

According to the regulations, the income or loss of property pfer shall be calculated and the income tax shall be paid according to law.

The tax cost of a merged enterprise to accept all assets of the merged enterprise must be determined on the basis of the original book value of the merged enterprise.

Therefore, the tax related issues of scheme 1 can be dealt with as follows: 1. the amount of non equity payment is less than 20% of the nominal value of the paid shares, and the company does not pay income tax on the pfer proceeds; 2. a company will take the assets of the company at the original net book value of 5 million yuan as the tax cost; 3. the loss of the company's annual losses will be made up by a company, and the supplement deficit in first years is 900 x 500/ (2000 x 3) =75 (10000 yuan), and the deficit in the second year is 100-75=25 (10000 yuan).

The present dividend value of a company's future dividend is as follows:

1. first years is [900-75- (900-75) x 0.25] * 75% * 180/2000 * 0.9091=37.97 (10000 yuan);

2. second years is [900-25- (900-25) x 0.25] * 75% * 80/2000 * 0.8264=16.27 (10000 yuan);

3. total in the following year: (900 x 0.67 x 0.75 x 180/2000) /10% * 0.8264=336.37 (10000 yuan), [Note: (p/s, 10%, 1) =0.9091, (p/s, 10%, 2) =0.8264].

The cash flow value of a company's merger with a company is 10+37.97+16.27+336.37=400.1 (10000 yuan).

According to the above calculations, the two options are

The present value is 4 million 513 thousand and 700 yuan and 4 million 6 thousand and 100 yuan respectively.

From the principle of minimization of the value of cash flow, option 2 should be selected.

To facilitate calculation, this case assumes that the market price of a company's shares remains unchanged, so it is necessary to compare the present value of cash outflows.

If the share price changes after merger, the current value of net cash flow must be compared.

Especially when the stock price rises, it is very likely that the current value of the net cash flow of scheme 1 is less than the scheme 2, thus changing the result of the selection of the plan.

The calculation in this paper is slightly sketchy, and other factors that affect cash flow are not taken into account.

Because plan 1 allows for the recovery of losses and does not allow depreciation, and plan 2 allows depreciation to be made and does not allow losses to be made up. When the amount of refunds and the amount of depreciation are changed, it will definitely affect the change of cash flow and further affect the choice of planning options.

Tax planning should not only consider the reduction of tax burden, but also take the realization of enterprise's strategic objectives and financial objectives as the starting point, taking into account various factors.