For example, there can be quite different tax outcomes for the buyer and the seller depending on how the payments are arranged. For example:
- should the payments be made before or after the legal transfer of the business/entity?
- which entity is entitled to the deduction in an asset sale or an entity sale and can they use it (e.g. are there any carried forward losses that arise and can these be recouped)?
- which entity is responsible for the employment tax obligations (e.g. payroll tax, superannuation, PAYG withholding)? What representations and warranties are required in a purchase contract?
- will such an obligation for a buyer form part of the Step 2 liability in an ACA tax consolidation calculation (at 70 percent or 100 percent) and will it become assessable to the buyer under the proposed tax consolidation provisions? How should this impact the purchase price calculation?
- how should any long term incentive plan arrangements be handled (e.g. employee share plans)?
There are of course a myriad of other non tax factors to consider as well – including keeping employees motivated in a time of uncertainty with a change in ownership of their employer!
In my experience, the fact pattern associated with each transaction is different, which means the most appropriate approach to the payment of such bonuses/retention payments can vary a great deal in different scenarios. Thus, we would recommend that this issue be considered early on in any Mergers and Acquisitions transaction.