Tax Due Diligence on Merger & Acquisition In Nigeria.

Tax Due Diligence on Merger & Acquisition In Nigeria.

Tax due diligence aims at identifying all forms of tax risks associated with either the purchase of shares or the sale of assets.

The focus of a tax due diligence is to identify, and to quantify material risks and assess the likelihood of a realisation of these risks. In addition, the review attempts to provide value added recommendations to the prospective buyer on how to address and control specific risks identified.

There are however, variables that impact the Due Tax Diligence process. These variables include detail transaction revealing any tax implication, legal and organization structure of the organization and the operation of such. In tackling the deal negotiations, parties should be aware of the impact of tax due diligence findings on the merger and acquisition as well as the contract indium.

At the level of transaction proper, the need for full disclosure to form an opinion becomes vital. Nothing should be hiding at his stage. In fact copies of all annual Tax returns made to both State and Federal Revenue Authorities as well as related documents that are maintained at the corporate head quarters as well as tax matters that should create discomfiture for the parties concerned should be brought into view.

The outcome of the investigations will form the basis for the analysis for the  tax due diligence process as well as the review. What is of concern at this juncture are the following findings. The parties in the merger talks may want to know who prepared the tax for the Income Tax provision of the companies and what forms the basis of the figure used and how time was spent. Each party may also want to find out what were the proposed or suggested adjustment relating to the provisions made by the external auditor or tax consultant and whether or not the provisions include any other taxes than Company Income Tax expense such as VAT, WHT, PAYE etc.

The tax implications of consolidation on acquiring company or acquired companies are similar to those of mergers. Acquisition expenses are non-deductible while fees paid to professional bodies are equally liable to WHT and VAT.

Olatunji is a Manager (International Tax & Advisory Services) with Saffron Professional Services(Member firm of Geneva Group International), Lagos, Nigeria.

E-mail:Oabdulrazaq@saffron-ng.com,Oabdulrazaq11@gmail.com