The Emerging Impact of Tax Reform on Domestic and Cross-Border M&A

Understanding New Deal Structure Considerations and Avoiding Traps for the Unwary

Note: CPE credit is not offered on this program

Recording of a 90-minute premium CLE webinar with Q&A


Conducted on Thursday, April 18, 2019

Recorded event now available

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Program Materials

This CLE webinar will examine selected provisions of the Tax Cuts and Jobs Act (TCJA) that have a significant impact on the structuring of domestic and cross-border mergers and acquisitions. The panel will discuss common deal structuring considerations and how to avoid some important potential traps for the unwary.

Description

On December 22, 2017, President Trump signed the TCJA into law. The TCJA was generally intended to encourage investment and to promote growth in the U.S. economy while reducing perceived “loopholes” and potential incentives to move profitable business operations offshore. Although many of the actual economic impacts of the TCJA are still emerging, there is no question that the TCJA has dramatically altered certain aspects of domestic and cross-border M&A transactions. Moreover, because of the relatively short time frame in which the TCJA was negotiated, drafted, and passed, and given that much of the resulting regulatory guidance is either relatively new or still remains to be finalized, there are many potential traps for the unwary that need to be carefully navigated by deal professionals.

As discussed in more detail by our panelists, key changes brought about by the TCJA include:

  • Reduction In the Corporate Tax Rate – a dramatic reduction in the corporate tax rate to 21%, which affects a variety of basic operational and transactional considerations, including choice of entity, deal structure, and related financial modeling and valuation exercises;
  • 100% Asset Expensing – the potential for the immediate (100%) expensing of certain kinds of tangible assets, whether placed in service by the original user, or by a subsequent purchaser, which affects capital expenditure decisions, as well as deal structure in certain circumstances;
  • NOL Limitations – restrictions on the use of net operating losses (“NOLs”) generated in 2018 or later tax years, and the inability to carryback these NOLs, which generally affects the valuation and use of NOLs by buyers and sellers (including any NOLs that may be generated in connection with an acquisition as a result of extraordinary transaction expenses);
  • Interest Expense Limitations – limitations on the deductibility of interest expense, including debt that was outstanding prior to the passage of the TCJA, which affects leveraged acquisitions and general capital raising decisions; and
  • International Tax Reform – a variety of new international tax provisions that impact both the structure of an acquisition, as well as post-closing operations, including the expansion of the Subpart F controlled foreign corporation rules, the “GILTI” tax under Section 951A, the “FDII” deduction under Section 250, the “BEAT” tax under Section 59A, as well as new rules relating to the potential for withholding on sales of partnership interests by non-U.S. persons.

In addition, as also discussed in more detail by our panelists, the changes created by the TCJA have had an impact on the substantive provisions of deal documentation, including traditional tax and financial representations, as well as standard due diligence procedures, financial models and post-closing administrative requirements.

Listen as our panel of experts guides you through the key provisions of the TCJA and provides practical advice that can be applied to your next transaction.

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Outline

  1. Change in the corporate tax rate / choice of entity considerations / Section 1202
  2. Section 168(k) / 100% asset expensing
  3. Section 172 / NOL limitations
  4. Section 163(j) / interest expense limitations
  5. International provisions

Benefits

The panel will review these and other key issues:

  • How has tax reform altered the choice of entity decision?
  • How has tax reform changed the analysis of a stock sale vs. asset sale structure?
  • What is the significance of the new limitations on the deductibility of NOLs and business interest expenses?
  • What traps for the unwary exist in the cross-border context and how is deal structure optimized for target corporations with international operations?

Faculty

Daniel, Russell
Russell A. Daniel

Partner
Grant Thornton

Mr. Daniel leads Grant Thornton’s Southeast Region Mergers & Acquisitions Tax Services practice. He assists...  |  Read More

Fuller, Pamela
Pamela A. Fuller, JD, LLM

Of Counsel
Tully Rinckey PLLC & Royse Law

Ms. Fuller advises a wide range of clients--including private and public companies, joint ventures, private equity...  |  Read More

Strong2, David
David Strong

Partner
Morrison & Foerster

Mr. Strong is co-chair of the Federal Tax Practice Group and the Tax Department at his firm and is also the managing...  |  Read More

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