Global Trends in VAT/GST and Direct Taxes

S. 634I. Introduction and background

Selling and buying companies through mergers and acquisitions are important instruments for companies to grow or to reorganize themselves throughout the phases of the economic cycle in order to stay competitive.

There are two main transaction structures available to acquire a business:

• Asset deal:

  In an asset deal, the acquiring entity only purchases selected operating assets and goodwill, which has the advantage that in general it does not become the universal legal successor of the transferor’s business and hence can limit its exposure by avoiding contingent and unknown risks.

  Since the sales price for the whole acquired business needs to be assigned to the individual assets, in many cases the acquirer can make use of a step-up in value by activating the hidden reserves and thus enjoy higher depreciation rates, which decreases its income tax.

  The allocation of the transaction value to the individual asset is cumbersome; therefore, the transfer of a totality of assets or parts thereof, capable of carrying on an independent economic activity, i.e. a transfer of a going concern (TOGC), can be done in a simpler manner under Art. 19 VAT Directive. Depending on...