Tax Structuring and Planning in M&A Deals - The Silent Deal Maker (or Breaker) ... CMA Ravi Monga

Tax Structuring & Planning in M&A: The Silent Deal Maker (or Breaker)

By CMA Ravi Monga

M&A deals aren't just about strategy, valuation, or synergies. Taxes can quietly drain — or defend — a massive chunk of deal value.

Let’s break down how tax structuring acts as the invisible force behind successful M&A execution.

1. Concept: Why Tax Strategy Is the Backbone of a Smart Deal

Every M&A transaction triggers tax consequences — sometimes obvious, often hidden.

From selecting the right deal structure (share vs. asset) to planning how profits will be repatriated post-acquisition, tax strategy determines whether a deal creates value or erodes it.

A well-designed M&A tax plan ensures:

• Deal value is preserved

• Post-merger integration becomes smoother

• No unexpected tax liabilities surface later

• ROI is maximized with strategic cash flow planning

In short, tax drives the economics of the deal, not the other way around.

2. Law: Navigating the Legal Tax Landscape

Modern M&A deals operate in a complex global tax environment shaped by:

• Double Tax Treaties

• OECD BEPS Guidelines

• CFC (Controlled Foreign Corporation) Rules

• GAAR / PPT (Principal Purpose Test)

• Substance requirements

These frameworks ensure that tax planning is linked to real commercial purpose, not just aggressive minimization.

Ignoring these laws can lead to:

• Treaty benefits being denied

• Tax leakages

• Litigation or heavy penalties

• Deal restructuring delays

Understanding the legal guardrails is essential before structuring any cross-border M&A deal.

3. Procedure: How to Structure the Tax Side of a Deal

A well-managed M&A tax process typically includes:

✓ 1. Determine the Deal Type:

• Share Purchase — continuity, access to losses, avoids step-ups

• Asset Purchase — depreciation benefits, but may trigger taxes for seller

✓ 2. Optimize the Funding Mix:

• Pure cash

• Share swap

• Hybrid debt instruments

• Intra-group financing

✓ 3. Choose a Holding Company Jurisdiction:

Preferably one with:

• Strong treaty network (Netherlands, Singapore, UAE)

• Participation exemption

• Good substance framework

✓ 4. Apply Treaty Optimization:

Lower withholding taxes on:

• Dividends

• Interest

• Royalties

✓ 5. Allocate Purchase Price Properly:

This impacts:

• Goodwill

• Deferred tax

• Amortization benefits

• Carry-forward losses

✓ 6. Align Transfer Pricing:

Cross-border transactions must be consistent with TP policies — especially post-merger supply chains.

✓ 7. Prepare for Tax Due Diligence:

Both buyer and seller must assess:

• Historical tax risks

• Compliance gaps

• TP exposure

• Indirect tax issues (VAT/GST)

4. Practical Example: The Netherlands Holding Play

An Indian global manufacturer acquired an EU-based enterprise. To optimize tax flow, they routed the deal through a Dutch holding company.

Why Netherlands?

• Lower withholding tax on dividends under India–Netherlands treaty

• Participation exemption eliminates tax on foreign dividends/capital gains

• Strong EU reputation & credible substance ecosystem

• Smooth profit repatriation with minimal leakage

But they did one thing right:

They ensured real substance —office, resident director, payroll activity, local governance, bank account, board meetings.

This protected the treaty benefits and future tax position.

5. Mistake to Avoid: Ignoring Deferred Tax Liabilities

A classic oversight in M&A tax planning:

Deferred tax arising from goodwill, asset step-ups, and loss utilization.

Example:

• In an asset deal, the buyer gets depreciation benefit.

• But the seller may face deferred tax liabilities due to revaluation.

If not modeled upfront:

❌ Deal pricing becomes unrealistic

❌ Buyer overestimates future earnings

❌ Seller underestimates their tax outflow

Always model deferred tax impact in the valuation stage — not after signing.

6. Pro Tip: Think Integration Before Execution

The best M&A tax strategies work backwards:

Integration Goal → Tax Structure → Deal Execution

Start tax planning for Day 1 integration early:

• TP documentation

• Intercompany agreements

• Accounting alignment

• Supply chain restructuring

• Post-merger entity rationalisation

A proactive tax roadmap prevents disruptions, disputes, and cash leaks.

Closing Thought

In M&A, tax isn’t a back-office task. It’s one of the biggest value levers.

When structured well, tax planning can add millions in shareholder value.

When ignored, it can quietly destroy a deal.

If you're a finance leader, advisor, or M&A professional, drop a message to get early access to this Value Lever.

Let’s make tax structuring a deal maker, not a last-minute headache.

Author Profile: CMA Ravi Monga (Brief Bio)

CMA Ravi Monga is an international tax strategist, M&A structuring specialist, and founder of Purple People International Pvt. Ltd. With 20+ years of cross-border tax, corporate restructuring, and global expansion experience across Europe, UAE, Africa, and Asia, he advises businesses on creating tax-efficient group structures, international holding company design, treaty optimization, and M&A tax planning.

He has authored multiple books in Finance, Taxation, Leadership, and Corporate Strategy, including upcoming titles on International Tax Alchemy, UAE VAT, and M&A Structuring. As a consultant, mentor, and trainer, Ravi helps CEOs, CFOs, and entrepreneurs build compliant, scalable, and globally optimized business structures.