From the seller’s perspective, “tax-optimized” means that the capital gain on the sale should be taxed at the lowest possible rate. From the buyer’s perspective, however, the factors to consider are more complex. For the buyer, it will be important that the future ongoing taxation of the company being acquired is as low as possible—for example, through a tax-deductible amortization of the purchase price, the retention of existing tax loss carryforwards, and the tax-deductible treatment of the costs associated with financing the acquisition. Furthermore, it may also be important for the buyer that any future resale be taxed at the lowest possible rate.
There is no standard structure that equally accommodates the tax interests of both the buyer and the seller. This is due, on the one hand, to the individual circumstances that must be taken into account during structuring. On the other hand, arrangements that offer advantages to one party are often associated with disadvantages for the other party.
For example, the sale of a company via an asset deal—in which all of the company’s assets are transferred to the buyer by way of individual succession—is generally advantageous for the buyer. This is because, in this case, the buyer can write off the purchase price for tax purposes to the extent that it relates to depreciable assets. In addition, financing costs directly reduce the purchaser’s current income, thereby lowering their future tax burden. For the seller, the capital gain from an asset deal is typically subject to a high tax rate. From the seller’s perspective, therefore, an asset deal is often considered disadvantageous. The same considerations apply to both buyers and sellers in the case of the sale of interests in a partnership, such as a general partnership (OHG) or limited partnership (KG).
From a tax perspective, the sale is generally most favorable for the seller when he or she sells shares in a corporation. For the buyer, however, this means they lose the ability to write off the purchase price for tax purposes. Furthermore, the buyer’s financing costs can only be taken into account to reduce taxes through additional structuring measures, such as entering into a profit transfer agreement with the acquired company.
To benefit from more favorable tax treatment, it may therefore make sense for the seller to contribute their business to a corporation or to convert their partnership into a corporation. However, holding periods must be taken into account in these cases, meaning the seller cannot immediately benefit from the more favorable tax treatment.
The points listed above demonstrate that developing and implementing a tax-optimized transaction structure that adequately considers the interests of both the seller and the buyer is no trivial task. This requires a careful analysis of the tax situation and, above all, early planning.
For more in-depth information, see the article “Saving on Taxes When Selling a Business.”
