Tax aspects of a company takeover: what every entrepreneur needs to know

Quick answer: What is the best acquisition structure for tax purposes?

That depends on your position. Sellers usually prefer a share transaction (participation exemption). Buyers are more likely to benefit from an asset/liability transaction (higher depreciation basis). The tax analysis also determines the final price.

A company takeover is one of the most drastic financial decisions an entrepreneur can make. Whether you're buying or selling, the tax structuring of the deal can make a difference of tens of thousands — or even hundreds of thousands — of euros.

In this article, Port Sight Tax's M&A tax specialists explain which taxes play a role in a business takeover, which structures you can choose, and what you, as a buyer or seller, should pay tax attention to. We handle the asset/liability transaction, the stock transaction, tax due diligence, financing and liability.

1. Two structures, two tax worlds

In the event of a company takeover, there are two main structures:

• The asset/liability transaction: the buyer acquires (part of) the company's assets and debts.
• The share transaction: the buyer acquires the shares in the company that drives the company.

This choice has far-reaching consequences for corporate tax, VAT and transfer tax — for both buyer and seller.

2. The asset/liability transaction: tax consequences

Corporate income tax with the seller

The realised book profit — the difference between sales price and tax book value of the transferred assets — is subject to corporate tax in the year of transfer (19% to €200,000; 25.8% above). Please also note the divestment addition if you have previously received an investment deduction.

Corporate income tax with the buyer

The buyer activates the acquired assets at the price actually paid and can depreciate them for tax purposes. Goodwill: maximum 10% per annum. Other assets: maximum 20% per annum. Buildings: up to the WOZ value as the ground value.

VAT: Continuation Requirement

In principle, no VAT is due upon the transfer (art. 37d OB Act 1968), provided that the buyer continues the business. Record this in writing in the purchase agreement. When transferring business premises, a review obligation may arise over the remaining review period.

Real estate transfer tax

Transfer of Dutch business premises is subject to transfer tax (10.4% in 2024). Under certain conditions, the concurrent exemption applies. The Secretary of State has also approved this exemption for immovable property that is part of a business transfer within the meaning of art. 37d of the OB Act.

Practical tip

Always ensure a detailed allocation of the purchase price to the individual assets. This determines the buyer's depreciation basis and the transfer tax on a transferred property.

3. The share transaction: tax consequences

Participation exemption for the seller

If the selling company holds at least 5% of the shares, the sales profit is exempt from corporate tax (participation exemption). The exemption also applies to earn-out payments and warranty price adjustments. Note: sales costs are not deductible either (direct causal criterion, HR December 7, 2018).

Consequences for the buyer

The buyer activates the shares at the cost. Disadvantage: no depreciation of the silent reserves held in the company. However, future dividends and sales profits are untaxed under the participation exemption. Purchase costs are not deductible insofar as they are directly related to the purchase.

Fiscal unity: termination and sanctions

If the target company is part of a Vpb tax unit with the seller, this unit terminates upon delivery of shares. Please note art. 15ai Vpb Act: assets that have been silently transferred within the fiscal entity in the previous six years must be upgraded to actual value. Make contractual agreements about the financial consequences of this.

→ In-depth: see our article “Due diligence investigation in a company takeover” for a complete overview of the tax risks that the buyer assumes in a stock transaction.

4. Tax due diligence: indispensable for every acquisition

Tax due diligence is the investigation by which the buyer maps out the tax situation of the target company. It is one of the most valuable investments in the acquisition process: discovered risks can lead to a lower purchase price, specific indemnities or — in exceptional cases — the cancellation of the deal.

What does tax due diligence investigate?

• Corporate tax: returns, assessments, book inquiries, compensable losses
• Sales tax: additional tax risks, pro-rata deduction, VAT position of real estate
• Payroll taxes: qualification of employment relationships (freelancers), stock options, expense allowances
• Fiscal unity: liabilities for tax debts of other group companies
• Tax deferences: temporary differences between commercial and tax
• Transfer pricing: business of intercompany transactions and documentation
• Transfer tax: previous property transfers

Recovery and additional tax periods

The tax authorities can levy for five years (twelve years for foreign elements). The period of indemnification in the purchase agreement must at least match this.

5. Tax deferences: impact on valuation

The target company's commercial balance sheet may include tax deferments. These are temporary differences between the commercial and tax valuation of assets or liabilities.

• Passive latency (liability): an asset is valued commercially higher than it is fiscally — tax is still due in the future. Example: commercial property €70, fiscal €50 → passive latency of approximately €5 at 25.8% Vpb.
• Active latency (claim): the company has compensable losses that can be expected to be exploited.

Failure or incorrect inclusion of tax deferments in the negotiation leads to an incorrect valuation of the target company. A solid fiscal DD fully maps out these latencies.

6. Financing the acquisition: interest deduction restrictions

Earnings stripping (art. 15b of the Vpb Act)

Interest is not deductible insofar as the balance of interest due and received exceeds 24.4% of adjusted profit (EBITDA) or more than €1,000,000 per year. Non-deductible interest can be rolled over to subsequent years.

Interest deduction restriction on related bodies (art. 10a Vpb Act)

In the case of an acquisition loan from a related party, the interest is in principle not deductible unless the buyer passes the double objectivity test or the compensatory tax test.

Fiscal unity as an optimization tool

If the buyer enters into a Vpb fiscal unit with the target company after the takeover, the interest on the acquisition loan can be set against the operating profits of the target company — within the limits of the earnings stripping rules.

7. Tax liability: indemnities and guarantees

In a share transaction, the buyer inherits the tax history of the target company. Tax liability risks must be covered contractually.

Joint and several liability (fiscal entity)

If the target company was part of a Vpb or VAT tax entity, it is jointly and severally liable for that unit's tax debts over the period of participation. For VAT, there is an 'extended' liability after the termination of the unit — preventable by timely written notification to the tax authorities.

Recommended contractual terms

• Tax indemnification for all taxes over the pre-closing period (minimum five years)
• Specific safeguards for identified DD risks
• Provisions on the distribution of the VAT burden within the (former) fiscal entity
• Agreements about transmitting compensable losses to the target company
• Obligation to timely notify the termination of the VAT tax entity

Warranty & Indemnity Insurance

W&I insurance covers buyer's claims in the event of a breach of warranties — including tax guarantees — directly with the insurer. This reduces post-closing dependency on the seller and sometimes makes deals possible that would otherwise be stranded in warranty discussions.

8. Earn-out and purchase price adjustments

Earn-out payments (depending on future performance) are subject to the participation exemption for both the seller and the buyer in the event of a stock transaction. It does not include interest due to late payment of an earn-out. The purchase agreement explicitly states that earn-out payments are treated as a purchase price adjustment.

9. Checklist: tax issues when taking over a company

• Make a conscious choice for assets/liabilities or stocks based on a tax analysis for both parties.
• Perform tax due diligence to identify hidden risks, latencies, and liabilities.
• Analyze the interest deductibility on the acquisition loan (earnings stripping, art. 10a Vpb Act).
• Check the target company's fiscal unit position (Vpb and VAT).
• Discuss the treatment of compensable losses: leaving behind or giving in?
• Include exhaustive tax indemnities and guarantees in the purchase agreement.
• Consider W&I insurance to cover tax claims after closing.
• Involve a specialist tax advisor in good time.

Port Sight Tax helps you structure the optimal deal for tax purposes

Port Sight Tax's M&A tax specialists assist buyers and sellers in transactions of all sizes — from family businesses to medium-sized growth companies.

Our services:

• Tax structuring (assets/liabilities or shares)
• Tax due diligence and vendor due diligence
• Assistance with tax guarantees and indemnities
• Financing structure and interest deduction optimization
• Communication with the tax authorities

Feel free to contact our M&A team for an initial meeting.