Why is tax planning important when conducting M&A transactions?

One of the fundamentals for competitiveness in today’s market is undoubtedly cost efficiency. Since taxes constitute a significant portion of costs, companies are incentivized to optimize their tax operations. On the other hand, as they serve as a source of public sector funding, taxes are also a focus of the government. Furthermore, the modern environment inevitably contributes to increasingly complex tax regulations, for which broader and more sophisticated knowledge is required for adequate interpretation. Therefore, tax planning and optimization are key factors in successful business operations in the contemporary environment and form the basis for business and investment plans.

Transactions such as corporate changes and acquisitions generally have significant tax implications that need to be carefully considered before their execution in order to optimize the tax costs resulting from them. The essence for tax planning is to be an integral part of business decision-making, which can certainly result in significant tax savings. On the other hand, if the tax aspects of these transactions are neglected, and decisions are made solely based on other business parameters, significant tax consequences may arise, which will only be realized after the transaction is completed.

Therefore, it is of utmost importance to understand the significance and benefits that tax planning brings and thus assess and potentially prevent unfavorable tax outcomes before the execution of the transaction. In some cases, a timely conducted tax analysis of potential transactions can even lead to withdrawal or significant changes in the initially created business plan.

However, if M&A transactions are conducted without tax planning, their realization can lead to unfavorable tax implications in terms of unplanned tax costs, which in practice are often in the millions.

Unfortunately, in Serbia, tax planning is generally not a part of the business decision-making process, even in transactions such as corporate changes and acquisitions, since awareness of it has not yet been widely developed.

Author: Bojan Lukić, TPA Serbia