Tax compliance for acquisitions: prepare before purchasing

A recent study by The Boston Consulting Group (BCG) touted the power of acquisitions for growth during turbulent economic times. The study found a positive correlation between mergers and acquisitions by companies during economic downturns and superior shareholder returns for those companies. The BCG noted that merger-and-acquisition activity executed during downturns, when GDP growth is below its long-term average of 3%, tends to produce substantially higher long-term shareholder returns than deals done in economic upturns. Although acquisitions can be important to strategic growth during times of economic uncertainty; the execution of an acquisition can be challenging, especially regarding tax compliance. It is critical that an acquiring company understand the tax implications of an acquisition before attempting to structure the transaction. One of the most challenging aspects of assessing tax liabilities is the time required to identify them. Moreover, if the target company has made any prior acquisitions, similar data for the acquired companies will be required.