Understanding Mergers and Acquisitions Tax - PwC

271 Pages·2012·3.43 MB·English

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The information contained in this publication is of a general nature only. It is not meant to
be comprehensive and does not constitute the rendering of legal, tax or other
professional advice or service by PricewaterhouseCoopers Ltd (“PwC”). PwC has no
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impact of laws can vary widely based on the specific facts involved. Before taking any
action, please ensure that you obtain advice specific to your circumstances from your
usual PwC client service team or your other advisers.
The materials contained in this publication were assembled in May 2012 and were based
on the law enforceable and information available at that time.
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Foreword
\
Nick Dignan
Regional Tax Mergers and Acquisitions Leader
PwC Hong Kong
During the two years since our last With the focus of global economic
edition of this publication, global activity rapidly shifting East, the
market economies continued to prospect for growth in Asia continues
fluctuate. While the US is slowly to be strong. Many Asian financial
recovering, economic risks have markets are continuing their path of
skewed towards Europe. Growth in deregulation. As M&A transactions
China is slowing off a high base and provide unique tax planning
the remainder of Asia Pacific continues opportunities, M&A is becoming a
to perform reasonably strongly. more important strategic tool in Asia.
However, potential tax risks need to be
Despite recent uncertainty and properly managed.
instability of global financial markets,
it appears that concerted massive In recent years, the issue of beneficial
government intervention has assisted ownership and the ‘legitimate’ ability
in strengthening the world economy. to claim tax treaty benefits is one of
Countries with unsustainable budget the most common challenges for
deficits continue to focus on closing cross-border investment. The OECD
tax loopholes, increasing tax revenue has invested considerable resources in
and reducing spending. 2011 to help clarify the meaning of
beneficial ownership. With increasing
Understanding Mergers and Acquisitions Tax in Asia – 2012
investment in the region and the Countries in the region continue to We have prepared a summary of 15
common use of multi-tier investment enter into new double tax treaties and jurisdictions across the Asia Pacific
structures by groups to manage their / or update / modify existing treaties. region, highlighting key tax issues
global tax position, tax authorities in For example, Hong Kong had five relevant to both purchasers and sellers
many jurisdictions are closely double tax treaties at the beginning of in an M&A deal.
monitoring the use of conduit 2010 and the number of double tax
companies, which have little treaties has increased to more than 20 This guide has been written using the
commercial substance and are merely at the beginning of 2012. extensive technical knowledge and
created for the purpose of obtaining practical deal experience gathered by
treaty benefits. Multinational Tax authorities of most countries in PwC’s M&A Tax Services practice in
companies and investment funds the region continue to enhance their Asia. We hope you find this publication
should not underestimate the scrutiny and strengthen of transfer an essential read when contemplating
importance of considering ‘business pricing guidelines and documentation M&A transactions in the region.
purpose’ and ‘commercial justification’ requirements. As an increasing Meanwhile, we strongly recommend
when establishing holding companies. number of multinational companies you to seek comprehensive tax advice
It is becoming increasingly difficult to are expanding outside of their own from one of our local PwC teams.
structure arrangements to take jurisdictions to improve operational
advantage of favourable treaty efficiency, company structures and Last but not least, I would like to
benefits unless there is genuine intercompany transactions should be express my sincere gratitude to PwC’s
substance in the relevant holding well planned and carefully monitored. M&A Tax Services country leaders and
company. their teams from Australia, China,
The Mergers and Acquisitions – Asian Hong Kong, India, Indonesia, Japan,
Tax authorities throughout the region Taxation Guide (now renamed as Korea, Malaysia, New Zealand,
are increasing their efforts to detect, ‘Understanding Mergers and Philippines, Singapore, Sri Lanka,
inspect and tax indirect capital gains, Acquisitions Tax in Asia’) was first Taiwan, Thailand and Vietnam as well
as can be seen in the recent Vodafone released in 2002, providing our clients as Scott Lindsay and Sanlie Yeung of
case in India (although the court found with some basic tools for PwC Hong Kong.
in Vodafone’s favour) and Guoshuihan understanding typical tax implications
[2009] No. 698 in China. in M&A deals in the region. In this
2012 edition, our network of M&A tax
professionals across the Asia Pacific
region continues offering you valuable
insights throughout the entire life
cycle of the M&A process, from
pre-deal negotiation, due diligence
and tax structuring to post-deal
integration.
Understanding Mergers and Acquisitions Tax in Asia – 2012
Table of contents
Australia .............................................................................. 1
China ................................................................................. 29
Hong Kong ......................................................................... 53
India .................................................................................. 65
Indonesia ........................................................................... 91
Japan ................................................................................105
Korea ............................................................................... 125
Malaysia ............................................................................141
New Zealand .....................................................................159
Philippines ........................................................................175
Singapore ..........................................................................189
Sri Lanka .......................................................................... 207
Taiwan ............................................................................. 223
Thailand ...........................................................................241
Vietnam ........................................................................... 255
Understanding Mergers and Acquisitions Tax in Asia – 2012
Australia
Country M&A team
Mark O’Reilly (country leader)
Anthony Klein
Chris Morris
Christian Holle
David Pallier
Kirsten Arblaster
Mike Davidson
Neil Fuller
Paul Abbey
Peter Collins
Tony Clemens
Vanessa Crosland
Your contacts in
Australia
Name Title Tel Email
Sydney
Chris Morris Partner [phone] [email protected]
Christian Holle Partner [phone] [email protected]
David Pallier Partner [phone] [email protected]
Mark O' Reilly Partner [phone] [email protected]
Mike Davidson Partner [phone] [email protected]
Neil Fuller Partner [phone] [email protected]
Tony Clemens Partner [phone] [email protected]
Melbourne
Anthony Klein Partner [phone] [email protected]
Kirsten Arblaster Partner [phone] [email protected]
Paul Abbey Partner [phone] [email protected]
Peter Collins Partner [phone] [email protected]
Vanessa Crosland Partner [phone] [email protected]
Sydney – Darling Park Tower 2, 201 Sussex St, Sydney, NSW 2000, Australia
Melbourne – Freshwater PI, Lv19, 2 Southbank Blvd, Southbank, VIC 3006, Australia
1. Introduction Broadly, the tax consolidation rules
allow resident group companies to be
treated as a single entity for income
tax purposes, with transactions
between such group members being
disregarded for corporate tax purposes
(e.g. payment of dividends and asset
1.1 General information on
transfers).
mergers and acquisitions in
Australia
These initiatives have created a
The Australian taxation system complicated tax landscape for
continues to undergo significant structuring M&A transactions.
reform. The government has launched Particular care needs to be exercised
various taxation initiatives in recent whenever companies join or leave a
years, including: consolidated group to ensure that tax
attributes are known with certainty
• the introduction of a tax
and that tax liabilities of the group
consolidation regime and
members are properly dealt with.
amendments regarding ‘rights to
However, there are still many
future income’
opportunities to structure a M&A
• the introduction of a simplified
transaction in a manner which
imputation system
delivers significant value to both the
• the introduction of a new research vendor and purchaser – particularly in
and development (R&D) incentive terms of capital gains tax (CGT)
planning, and optimising funding and
• reform of Australia’s tax treatment
repatriation arrangements.
of employee share schemes
• reform of Australia’s international The government has taken a
tax law significant step towards the biggest
reform to business innovation support
• reform of Australia’s tax treatment
for more than a decade by introducing
of financial arrangements
a new streamlined tax incentive for
• the proposed introduction of the R&D which replaces the existing R&D
minerals resource rent tax (MRRT) tax concession with effect from 1 July
and extension of the petroleum 2010. Under the new incentive,
resource rent tax (PRRT), and companies with a turnover of more
than A$20m will be entitled to a 40%
• the proposed introduction of a
non-refundable R&D tax offset for
carbon pricing mechanism as part
undertaking eligible R&D activities
of draft legislation that has recently
which can be used to reduce their tax
been introduced to implement the
liability. A 45% refundable R&D tax
key elements of the government’s
offset will be available for all other
Securing a Clean Energy Future
eligible entities (see section 1.8).
plan announced on 10 July 2011.
Australia 3
On 26 March 2009, the final stages of Companies that utilise employee share The key features of the proposed new
reforms to the taxation of financial schemes need to consider their MRRT include:
arrangements were enacted. The incentive schemes in light of the new
• The MRRT will be at a rate of 30%
reform process which had been under employee share scheme legislation
reduced by an allowance for
way for approximately 18 years was which was enacted on 14 December
extraction of 25% to recognise the
intended to replace a patchwork of 2009 and which applies
value of specialist skills miners
general principles and specific rules retrospectively from 1 July 2009.
employ to extract the resource and
with a single coherent framework for Broadly, under the new rules, the
bring it to taxing point, i.e. an
the taxation of financial arrangements. deferral of taxation is dependent on
effective tax rate of 22.5%.
The new regime applies to the first the structure of the employee share
income year commencing on or after scheme with a maximum deferral limit • The MRRT is applied to realised
1 July 2010, or, if the early start of seven years. Participants also lose profits attributable to the condition
election is made, the first income year the choice to be taxed upfront under and location of the resource at the
commencing on or after 1 July 2009. the new rules (see section 1.5). taxing point, a point straight after
The changes introduced in the new extraction in the production chain,
regime affect both the timing of In May 2010, the government released and will use an arm’s length pricing
income and deductions in relation to its interim response to the method to ensure only the value of
financial arrangements as well as the recommendations made following the the resource extracted is taxed,
character of those income and comprehensive review of Australia’s reduced by certain MRRT
deduction amounts. As the new law tax system (Henry Review) which allowances.
may have a significant impact on the commenced in May 2008. Since then,
• Taxpayers (and their connected
Australian tax outcomes of funding one of the key changes proposed by
entities and affiliates) which have a
arrangements for M&A activity, its the government is that it will reduce
mining profit of A$50m or less in an
impact needs to be considered in the the company tax rate from its current
MRRT year are entitled to reduce
structuring of any transaction. rate of 30% to 29% in the 2013/14
their MRRT liability to zero.
income year (or for small business
Australia’s international tax laws have companies from the 2012/13 income
The MRRT is intended to apply from
continued to undergo significant year), in conjunction with the
1 July 2012 to all new and existing
reform. Legislation was enacted on introduction of a new MRRT
iron ore and coal operations.
14 July 2010 which repealed the applicable to iron ore and coal projects
foreign investment fund (FIF) in Australia and an extension of the
On 13 September 2011, the
provisions and deemed present PRRT to apply to all Australian
government introduced a package of
entitlement rules. On 5 January 2010, onshore and offshore oil and gas
legislation which will put a price on
Treasury also released a consultation projects, including the North West
carbon pollution, promote investment
paper for public comment detailing the Shelf. Exposure draft legislation in
in renewable and clean energy
reforms to the controlled foreign respect of the MRRT and PRRT was
technologies and support action to
company (CFC) rules. In February released by Treasury on 10 June 2011
reduce carbon pollution on the land.
2011, the Assistant Treasurer released and 26 August 2011 respectively. This
exposure draft legislation setting out is expected to be subject to extensive
These important reforms are a central
the proposed legislative details of the consultation prior to enactment.
element in the government’s policies
taxation laws to modernise the CFC
to ensure that Australia reduces its
rules and to implement new foreign
carbon pollution in the most
accumulation fund (FAF) rules (see
economically efficient manner while
section 1.4).
including extensive measures to
support jobs and competitiveness.
4 Understanding Mergers and Acquisitions Tax in Asia – 2012
The Bills implement the key elements foreign company’s total assets. Where 1.2.3 Dividends
of the government’s Securing a Clean this ‘active foreign business asset
To the extent that dividends are paid
Energy Future plan announced on 10 percentage’ is less than 10%, there is
between resident companies that are
July 2011. The proposed carbon no reduction to the capital gain or loss.
members of a tax consolidated group,
pricing mechanism which is intended Where this percentage is greater than
they will be ignored for calculating
to be introduced from 1 July 2012 will 90%, there is no capital gain or loss to
Australian taxable income of the
embed a carbon price into the the Australian company. If the
group.
Australian economy. There are a percentage is between 10% and 90%,
number of income and indirect tax the capital gain or loss is reduced by
Where dividends are not paid within a
impacts of the proposed carbon that percentage.
tax consolidated group, dividends paid
pricing mechanism, both for those
by a resident company will be fully
directly impacted by the carbon price Non-resident taxpayers are generally
taxable to the resident recipient
and for those impacted by associated only subject to Australian capital gains
company at the corporate tax rate. A
measures, such as changes to the fuel tax (CGT) on the disposal of Taxable
‘gross up and credit’ system applies to
tax and excise rates, and small Australian Property (TAP). Broadly,
the extent that dividends are franked
businesses and individuals impacted assets which are TAP include interests
(i.e. generally paid out of previously
by the tax-related compensation in Australian real property, assets
taxed profits by a company that is
measures. used in carrying on a business through
resident where tax credits are
a permanent establishment in
attached). The dividend is grossed up
1.2 Corporate tax Australia, and direct and indirect for the credits (being the tax paid on
membership interests of at least 10%
the underlying profits and attached to
1.2.1 Income tax
in an entity (resident or non-resident)
the dividend by the paying company)
The corporate tax rate in Australia is where broadly, at least 50% of the
and this grossed up amount is
currently 30%. Australian resident relevant entity’s asset base by market
assessable, with the receiving
companies are generally taxed on value is comprised of direct or indirect
company being entitled to a non-
income derived directly or indirectly interests in Australian real property.
refundable tax offset for the credits
from all sources, whether in or out of TAP also includes any option or right
attached to the dividend. To the extent
Australia. to acquire such assets (see section
that such tax offsets are not used at
2.3.1).
year end, they may convert into a tax
1.2.2 Capital gains tax
loss of the recipient company, to be
Non-residents making asset
Capital gains derived by Australian used by the company in future years,
acquisitions on revenue account will
companies are also generally taxed at but subject to the rules governing the
need to carefully consider their
30%. deductibility of tax losses.
position since Australian sourced
gains on revenue account are
Where an Australian company Dividends paid by a resident, to the
generally assessable (even if CGT does
disposes of shares in a foreign extent that they are unfranked (i.e.
not apply because the asset is not TAP)
company in which it holds 10% or dividends effectively paid out of
but subject to relief from Australian
more of the voting rights, any resulting untaxed profits such that there are no
tax under a relevant double taxation
capital gain or loss is reduced by a tax credits attached) are fully taxable
treaty. Please see ‘capital gains tax’ in
percentage that reflects the degree to to the resident recipient company and
section 7.2.1.
which the assets of the foreign no tax offsets are available.
company are broadly used in carrying
Where a gain is subject to CGT and
on an ‘active business’. This
also taxation on revenue account,
percentage is broadly calculated as the
special rules apply to ensure that,
level of active foreign assets of the
broadly, the gain is not taxed twice in
foreign company divided by the
Australia.
Australia 5
Non-portfolio dividends received by a The rates of tax vary depending on Australia’s conduit foreign income
resident company from non-resident whether Australia has a double (CFI) regime came into effect on
companies are excluded from tax, taxation agreement (DTA) with the 1 July 2005. It applies to certain
regardless of the country of origin of recipient jurisdiction. In summary, the unfranked dividends paid out of
the dividend. To obtain this relief, rates are usually as follows: foreign income which are distributed
broadly the recipient company must by Australian resident companies to
own shares (excluding certain finance Type of income Non-treaty Treaty non-resident shareholders. Such
rate rate
shares) entitling the shareholder to dividends are exempt from both
more than 10% of the voting power in Interest 10% 10% income tax and dividend withholding
the non-resident company. Royalties 30% 10 - 15% tax. Broadly, the exemption applies to
Unfranked 30% 15% dividends paid from the following
Other dividends received from dividends income:
non-resident companies may be (paid out of
untaxed profits) • certain foreign sourced non-
assessable depending on the
portfolio dividends
circumstances. Franked - -
dividends • certain active foreign income and
(paid out of
certain capital gains derived
1.3 Withholding tax taxed profits)
through a permanent establishment
1.3.1 Interest, dividends and in a foreign country
It should be noted that some
royalties
Australian DTAs (such as the treaties • capital gains from the disposal of a
Interest, dividends and royalties paid
with the US, the UK, France, Finland, non-portfolio holding of shares in a
to non-residents are subject to
Norway, South Africa, Japan and New foreign company which are not
Australian withholding tax except
Zealand) feature lower withholding subject to Australian CGT, and
where the amounts are derived
tax rates. For example, interest paid to
through an Australian permanent • foreign income and gains not
a financial institution of one of these
establishment (in which case they will subject to tax due to foreign income
treaty countries by a resident of the
generally be subject to taxation by tax offsets.
other country may be subject to zero
assessment). Where withholding tax
withholding tax, royalties may be
applies, this is a final tax and is
subject to a 5% withholding tax and 1.3.2 Fees for services
calculated as a percentage of the
dividends paid to corporate shareholders
Generally, fees for services are not
amount derived. In the case of
can, in some circumstances, attract a
subject to non-resident withholding
dividends, withholding tax does not
lower rate of withholding tax rate,
tax, provided the payments are not
apply to the extent that the dividends
including a zero rate where specified
considered to be royalties.
are franked under the dividend
conditions are met.
imputation system (effectively these
However, foreign resident withholding
are dividends paid from taxed profits
Australia has a significant number of
tax rules apply to impose a non-final
where credit for the tax paid is
tax DTAs (in excess of 40), which cover
withholding tax on payments arising
attached to the dividend) or conduit
Australia’s largest trading partners.
in Australia which are of a kind
foreign income rules (see below) apply
prescribed by regulations and paid on
to exempt the dividend from
or after 1 July 2004 to a foreign
withholding tax.
resident. One payment that has been
6 Understanding Mergers and Acquisitions Tax in Asia – 2012