M&A and Group Reorganization

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PwC Tetsuya Yamagishi
Tetsuya Yamagishi

A company undergoing a strategic transition such as a merger, acquisition, or divestiture, risks losing value and control. The chaos surrounding the transition often impedes a company's ability to simultaneously focus on maintaining current operations, realizing valuable deal synergies, and achieving timely integration. Without a clear and comprehensive approach and the resources to achieve these strategic priorities, the company could miss unique opportunities, hinder transition efforts, and create unnecessary and potentially substantial risks.

PricewaterhouseCoopers' (PwC) approach to a corporate reorganization focuses on shareholder value and managing the risks relating to the transaction. We emphasize clear communication of tax and structuring issues in a commercial context. Our aim is not only to assist in identifying and managing the risks involved in the reorganization, but more importantly, to assist in identifying and capitalizing on the opportunities.

Ours is a collaborative approach in which our tax professionals work with clients and other advisors (e.g. lawyers, audit company, investment banks, etc.). We provide effective and high-value reorganization related tax services in cooperation with our global PwC M&A tax service team and our Assurance and Advisory practices in Japan.

Our experience covers a wide range of services at all stages of the reorganization process. Services provided by our office include the following:

The purpose of acquisition due diligence is to ensure that the acquirer fully understands the key risks relating to the acquisition by assessing and validating the assumptions that underlie the deal, giving the acquirer a coherent overview of the financial position and obligations of the seller, and providing the acquirer with valuable information to support the negotiation of the purchase price. We can assemble a due diligence team quickly and our tax professionals will carry out the necessary review on a systematic and consistent basis, focusing on risks (and their quantification) and opportunities.

Our tax structuring services focus on pre-deal structuring, deal execution, and post-deal integration. The tax treatment of a domestic reorganization depends on the method for structuring the transaction (e.g. company split, merger, contribution in kind, etc.). In addition, overseas subsidiaries may be affected by the method that is used to complete the reorganization. During the pre-deal and deal execution phases, we can help focus efforts to ensure that the transaction is executed in a way that will reduce the group tax rate going forward.

In case the reorganization is conducted on a global basis, the restructuring plan becomes more important since the tax planning should be carefully studied to take into account the impact on overseas affiliates. Further, if the other party to the transaction is a foreign company, detailed tax planning such as whether to establish a holding company, how to organize existing subsidiaries, etc., is indispensable. We will assist in identifying such issues and will build in the necessary flexibility to deal with changes in the future.

We also provide post integration tax planning by taking into account the global business structure. Our team can assist in identifying and analyzing the potential tax effects of a strategic reorganization during the planning and implementation stages, thereby providing the client with the opportunity to focus on the business opportunities, barriers, and risks associated with reorganization. Analysis of the transaction and the company's business strategy should allow us to consider and offer suggestions to improve the client's tax position, and create long-term efficiencies and tax cost savings.

Negotiations will generally occur based on the valuation of the stock, assets, and/or business that is prepared by financial advisors and audit corporations. However, there are tax risks if the valuation is not based on arm's length pricing standards, which could potentially trigger the recognition of taxable donation income. In order to reduce such tax risks, it is necessary to prepare the valuation for tax purposes and execute the reorganization based on such valuation. We can provide valuation services for tax purposes.