FINANCE & ECONOMICS

M&A Tax: CSR and internationalisation place new demands on you as a tax expert

Business transfers are becoming more numerous, larger and more complex. Regulations are not harmonised across countries and CSR raises new questions when companies are merged or divested. Partner and tax advisor at EY in Denmark Carina Marie G. Korsgaard, who also teaches on the new course ‘M&A Tax’ at the Master of Tax, discusses this and why you should strengthen your handling of tax law issues and gain insight into commercial considerations.

By Master of Tax

Carina Korsgaard, lecturer at Master of Tax

When a buyer considers purchasing a business, it is an investment. However, beyond the pure investment case, there are other considerations that come into play. Private equity funds and larger companies often have a socially responsible tax policy and the starting point is corporate social responsibility (CSR).

‘CSR, ESG (Environmental, Social and Governance) and sustainability are big headlines that are often associated with a responsible tax policy in the tax field, and they are more important than they were five years ago when one company wants to buy another. At the same time, it is a matter of hours before a deal is announced on social media. That is why it is important that you, as a tax expert, can advise on issues related to responsible tax policy,’ says Carina Marie G. Korsgaard, Partner and Tax Advisor at EY in Denmark.

She explains that it is all about asking the right questions when preparing the tax due diligence for the business transaction.

‘There are a lot of touchpoints where tax is linked to CSR and ESG. It can also be about asking how management remuneration is organised,’ she says and adds:

‘We see a growing trend of companies that otherwise excel in CSR and ESG being criticised for not delivering on a responsible tax policy. We believe that this trend is only moving towards increased scrutiny and pressure for companies to actively consider and credibly prove their contribution to society. As American professors explained in the Vanderbilt Law Review earlier in May, is there really a missing ‘T’ for tax in the ESG concept?’

"There are a lot of touchpoints where tax is linked to CSR and ESG. It can also be about asking how management remuneration is organised,"

Carina Marie G. Korsgaard, Partner and Tax Advisor at EY in Denmark.

Tax plays a direct role in valuation

The investment when one company considers buying another can be measured either from the point of view of the target company itself (also known as the target) or from the investor's point of view (shareholder level). And tax affects the valuation of the company at both the company and investor level. In this context, tax issues can play a direct role in the valuation, for example, if it is deemed that the company should make a restatement of a previous income year to correct an issue that has been incorrectly handled by the target company. The buyer will usually demand a reduction in the purchase price for this, explains Carina Marie G. Korsgaard. In addition, it is important to understand how taxes and duties can affect the valuation models and to get the necessary input from tax advisors.

Carina Marie G. Korsgaard has more than 20 years of experience advising on acquisitions and is seeing a large and growing number of transactions.

‘Tax often takes longer to process than a regular financial due diligence, and it has not gotten any easier because the deals often go across countries that have not harmonised their rules. Private equity funds also have a lot of money to spend, which results in more deals,’ she says.

This is part of the reason why the Master of Tax, now offers an M&A Tax course with Carina Marie G. Korsgaard as course coordinator and teacher.

The course is structured in 3 modules:

Module 1 covers the due diligence framework, identification of current tax risks and the context in which the analyses are included
Module 2 deals with the identification of tax risks, including handling them through negotiation between the parties
Module 3 deals with tax issues that typically arise in connection with business transfers.

The course is taught in Danish 🇩🇰.

Read about the course

"M&A Tax is a discipline that challenges you due to its connections to many other fields"

Carina Marie G. Korsgaard, Partner and Tax Advisor at EY in Denmark.

Earn-outs and tax governance - what do you do?

According to Carina Marie G. Korsgaard, the M&A Tax course on the Master of Tax can create interesting dialogue across competencies, as the course is for accountants, lawyers and employees from the tax authorities, who each work with corporate transactions in their own way.

‘As a tax advisor, I recognise trends when they hit the market, because I get the questions from customers. It can be interesting to discuss issues with people from the Danish Tax Agency at an early stage, because otherwise the authorities typically only get the cases years later when the tax audit has started,’ she says.

In other ways, corporate transactions are also a field where many different professional competences come together.

‘In business transactions, tax is not the only consideration. What about corporate law, and what does the bank say? M&A Tax is a discipline that challenges you due to its connections to many other fields, and we discuss these aspects as well.’

In general, the course is very ‘hands-on’, says Carina Marie G. Korsgaard: ‘The questions we work with are also the questions you deal with when you sit behind your desk.’

And there are many aspects to consider. Here are two points that Carina Marie G. Korsgaard calls ‘very interesting to work with’ and which you will be introduced to in the course:

Earn-outs: In business transactions, there can be disagreements between buyers and sellers regarding the price. Sellers aim for a high price, while buyers try to minimise their expenditure. This often leads to a compromise. An earn-out is an agreement where, for example, over a three-year period, the revenue is monitored, and based on this, an additional price may be paid for the company. This is particularly relevant in sectors with high uncertainty due to economic cycles. The tax regulation of such additional payments can be very complex.
Governance for a Founder: Sometimes, in a business transaction, the buyer might say, “All the knowledge about the company resides with the founder, so I need to ensure they continue.” Therefore, it is crucial to establish the right governance from a tax perspective when a founder continues in a new buyer setup.

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M&A Tax

The course covers the due diligence framework, identification of current tax risks, including handling them through negotiation between the parties, and the context in which the analyses are included. You also get to learn about tax issues that typically arise in connection with business transfers. The course is taught in Danish 🇩🇰.

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M&A Tax: CSR and internationalisation place new demands on you as a tax expert

"There are a lot of touchpoints where tax is linked to CSR and ESG. It can also be about asking how management remuneration is organised,"

M&A Tax course

"M&A Tax is a discipline that challenges you due to its connections to many other fields"

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