Question

What are financial reporting and tax considerations in M & A transactions, both domestic and international? Discuss with some examples.

Answer 1

In M&A transactions the deal can be of two types basically : It can either be a Merger or a Acquisition.

Now in terms of financial reporting and taxation there has to be a domestic consideration if there is a purchase of a company or merger with a company within geographical boundaries. This means that both the companies in any of the transaction have their base in the same country. This is where there is domestic consideration regarding the financial reporting. All the taxation and reporting has to be done keeping in mind the taxation laws of that particular country. Also all the reporting would have to be done keeping in mind the financial laws of that country. In terms of the currency involved in the deal it is proper to assume that it would be the currency of the same country/continent as is followed as per the norm.

There are M&A deals where the merger/acquisition happens between companies across the globe. Both the companies may not have a base in the same geography. This would mean that there would be different financial reporting standards that would need to be complies by, by each company as per the country where it is present. Also all taxation related norms would have to be complied with by both the parties involved. In International cases there would also be an involvement of currency exchange rate that would impact the deal and hence the taxation. Also agreements between the two countries related to such transactions and also currency and taxation would play a major role in how the deal shapes out.