Mergers & Acquisitions
3. Decision to Consolidate
Last updated: 06 Jul 2015
- There are many considerations that you should take into account before making a decision to consolidate a group of companies.
- Consolidation decisions invariably involve questions of business structuring. The structure will often have impacts for tax and company compliance.
- It is crucial that consolidation does not result in undue tax obligations or compliance burdens. These will often be difficult to foresee without the help of a specialist lawyer. The decision to consolidate requires a comprehensive review of laws not only applicable to taxation but also those affecting companies, partnerships and trusts.
- Preparation of tax sharing and tax funding agreements are legally binding documents and need special attention.
- For example each of the group members becomes jointly and severally liable for the tax liability of the group. This means that debts or liabilities can be claimed against all or any of the companies regardless of whether it was your company or another that incurred the debt or liability.
- When there is a default by the head company it can result in unintended tax consequences and even bankruptcies.
- Potential challenges to consolidation decisions based on the grounds of tax avoidance are common and steps should be taken from the outset to document a reasonably arguable position for consolidation.
- A determination by the Commissioner of Taxation that consolidation was undertaken to obtain a tax benefit can lead to increased tax liability together with penalties.
- The allocation of the allocable cost amount (ACA) is a very important part of consolidation. It is best undertaken with appropriate legal and financial advice.
- Review of the law in this area is common and amendments are made on a regular basis. Follow-up is essential as it is easy to overlook an amendment and find yourself in a position of non-compliance.
- If you think you may need legal advice our free Find a Lawyer directory may help put you in touch with the assistance you need.
View more Information on Business & Company