M&A Tax Planning

M&A Tax Planning: Maximizing Transaction Efficiency

Tax liabilities have a huge impact on the financial outcome of any Merger and Acquisition (M&A) deal. M&A Tax Planning is a strategic process aimed at structuring the transaction to legally minimize the tax burden for both the seller and the buyer. An incorrectly planned deal can lead to unexpected tax debts, overpayment of VAT, or loss of tax benefits. In Georgia, where the "Estonian Model" (deferral of corporate income tax until distribution) applies, M&A transactions require a specific approach to avoid qualifying the reorganization process as profit distribution.

Legal.ge offers highly qualified tax lawyers and consultants who will help you select the optimal transaction structure. Our specialists ensure that your transaction is not only legally sound but also financially efficient.

What Does M&A Tax Planning Cover?

The service covers a full analysis of the tax aspects of the transaction:

• Transaction Structuring: Deciding which form is better from a tax perspective — Asset Deal or Share Deal.
• Tax Due Diligence: Checking the target company's historical tax risks (hidden liabilities, audit risk).
• Taxation of Reorganization: Analyzing the tax consequences of merger, division, or transformation operations under the Tax Code of Georgia.
• International Taxation: Using double taxation avoidance treaties and optimizing holding structures for cross-border transactions.
• Seller's Tax Position: Minimizing income or profit tax incurred by an individual or legal entity when selling shares (e.g., the 2-year holding rule).

Common Scenarios When Tax Planning is Critical

Tax consultation is essential in the following situations:

• Acquiring Real Estate Holding Companies: Buying assets often triggers VAT liabilities, whereas buying shares does not. The right choice saves significant amounts.
• Acquiring Loss-Making Companies: Assessing whether the target company's accumulated tax losses can be used to offset future profits.
• Dividend Repatriation: Optimizing Withholding Tax when distributing dividends to a foreign investor.
• Management Incentives: Taxation of options or shares transferred in the context of an M&A deal.

Georgian Legal Framework

M&A Tax Planning is based on the Tax Code of Georgia. The Code provides special rules for reorganization, where the transfer of assets between partner companies is not considered a supply and is not taxed with VAT or profit tax if specific conditions are met (continuity principle). Also important are the orders of the Minister of Finance and manuals of the Revenue Service, which clarify complex tax issues. For international transactions, the OECD Model Convention and bilateral treaties concluded by Georgia are used.

Service Process Stages

Working with a specialist involves:

1. Goal Analysis: Developing a tax strategy considering the client's commercial goals.
2. Modeling: Comparative analysis of the tax burden of different scenarios (Share Deal vs Asset Deal) in numbers.
3. Risk Identification: Assessing tax risks identified during Due Diligence and reflecting them in the price.
4. Contractual Support: Formulating Tax Indemnities in the SPA.
5. Implementation: Post-transaction declaration and interaction with tax authorities.

Why Legal.ge?

Taxes are the largest "hidden cost" of an M&A deal. An experienced tax lawyer can save 10-20% of the deal value through proper structuring. Legal.ge connects you with experts who have deep knowledge of both local and international tax law. Plan your deal smartly with Legal.ge.