Post Acquisition Handbook - Baker and Mackenzie - 2017

Baker McKenzie helps clients overcome the challenges
Post-Acquisition Integration Handbook

of competing in the global economy.
We solve complex legal problems across borders and practice

areas. Our unique culture, developed over 65 years, enables
our 13,000 people to understand local markets and navigate
multiple jurisdictions, working together as trusted colleagues
and friends to instill confidence in our clients.
www.bakermckenzie.com
2017
Post-Acquisition
© 2017 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with
Integration Handbook
Closing the deal is just the beginning
member law firms around the world. In accordance with the common terminology used in professional
service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a
law firm. Similarly, reference to an “office” means an office of any such law firm.
This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not
guarantee a similar outcome. Baker & McKenzie Global Services LLC / 300 E. Randolph Street / Chicago,
IL 60601, USA / +1 312 861 8800.
Post-Acquisition
Baker McKenzie l 1
IMPORTANT DISCLAIMER
All of the information included in this Handbook is for informational purposes
only and may not reflect the most current legal and regulatory developments. This
information is not offered as legal or any other advice on any particular matter,
whether it be legal, procedural or otherwise. It is not intended to be a substitute
for reference to (and compliance with) the detailed provisions of applicable laws,
rules, regulations or forms. Similarly, it does not address any aspects of the laws of
jurisdictions outside the specific jurisdictions described, to which a company may
be subject. All summaries of the laws, regulation and practice of post-acquisition
integration are subject to change and, unless otherwise noted, are current only as of
31 March 2017.
Baker McKenzie, the editors and the contributing authors expressly disclaim any
and all liability to any person in respect of the consequences of anything done or
permitted to be done or omitted to be done wholly or partly in reliance upon the
whole or any part of the contents herein. No client or other reader should act or
refrain from acting on the basis of any matter contained in this Handbook without
first seeking the appropriate legal or other professional advice on the particular facts
and circumstances.
This Handbook may qualify as “Attorney Advertising” requiring notice in some
jurisdictions. Baker & McKenzie International is a Swiss Verein with member law firms
around the world. In accordance with the common terminology used in professional
service organizations, reference to a “partner” means a person who is a partner, or
equivalent, in such a law firm.
Similarly, reference to an “office” means an office of any such law firm. References in
this Handbook to “Baker McKenzie” include Baker & McKenzie International and its
member law firms, including Baker & McKenzie LLP. This Handbook itself does not
create any attorney/client relationship between you and Baker McKenzie nor does it
create a contractual relationship between you and Baker McKenzie.
© 2017 Baker & McKenzie LLP

All rights reserved
2 l Baker McKenzie
Introduction
Introduction
It is a time of relentless volatility and ambiguity, with the complexities of

globalization, economic and political uncertainty, disruptive new business models,
cyber insecurity and multiplying layers of regulation causing a constantly changing
business landscape. Our clients want a new breed of lawyers who can look a
decade or more ahead and can offer a fresh approach to helping them navigate a
challenging market. At Baker McKenzie our people work across borders and sectors
to simplify complexity and give our clients confidence in doing business in today’s
unpredictable world.
We have a strong track record of working successfully with multinationals to
integrate and restructure their business operations. As one of only a handful of law
firms with a dedicated Global Reorganizations Practice, we are in a unique position
to assist companies in planning and implementing post-acquisition integration
projects. By strategically addressing all legal and tax implications with an integrated
approach, we help our clients to manage change effectively in order to deliver better
value from their acquisitions with less business risk.
This Handbook serves as a practical reference tool for any company contemplating,
or in the process of executing, a multinational business acquisition and integration.
Key topics such as tax, corporate law, employment and compliance are considered
and regional comparison tables summarize the main tax, employment and corporate
aspects of integrations in more than 40 countries.
Baker McKenzie l 3
4 l Baker McKenzie
Table of Contents
Table of Contents
Section 1 Overview 7
Section 2 Post-Acquisition Integration: Developing 9
and Implementing a Plan
Section 3 Process: Process Map, Timeline and Checklist 25
Section 4 Antitrust/Competition Considerations 52
in the Pre-Merger Integration Phase
Section 5 Tax Considerations 56
Section 6 Employment 100
Section 7 Employee Benefits/Equity Awards 145
Section 8 Compliance and Risk Management 153
Section 9 Cross-Border Mergers in the EU 169
Section 10 Summary of Local Integration Methods 181
Section 11 Baker McKenzie Offices Worldwide 250
Baker McKenzie l 5
6 l Baker McKenzie
Section 1
Overview
Section 1
Overview
Closing the deal is just the beginning. The majority of acquisitions fail to meet pre-deal
expectations, and the real challenge for any company acquiring a business is ensuring
that the acquisition delivers the value that motivated the decision to do the deal
in the first place. In a low growth environment, management are under increasing
pressure from shareholders to focus more attention on how they achieve this.
Synergies can be elusive. Where the acquirer and target businesses operate in the
same or complementary fields, it is almost always the case that the acquirer will
want to integrate the two businesses with a view to saving costs and generating
value for its shareholders through meeting synergy targets. But bringing together
businesses with different trading relationships, histories and cultures inevitably poses
substantial challenges, which can hamper the achievement of those synergy targets
— particularly in the short and medium term. Where the businesses of the acquirer
and target are multinational, the scale and number of those challenges increase
significantly.
The aim of this Handbook is to provide a practical reference tool for any company
contemplating, or in the process of executing, a multinational business acquisition
and integration. Providing a guide to the process of identifying the issues to be
addressed, and of planning the integration and its legal implementation, it seeks to
assist acquirer companies to develop the best strategies to overcome the challenges
and deliver maximum value to shareholders from the acquisition. Every acquisition
will bring its unique business, operational and cultural challenges and this Handbook
is designed to be used in conjunction with the planning that a multinational group
will do to address these specific challenges.
The issues raised in this Handbook are likely to be of general application to acquiring
groups headquartered in any jurisdiction, though a number of examples highlight
issues particularly relevant to acquirers headquartered in the United States.
This Handbook is built around a customary situation where the parent company
of one multinational group acquires all of the shares or assets of the parent or
intermediate holding company of another multinational group. This ordinarily creates
a corporate structure containing two separate chains of international subsidiaries,
with the likelihood that in many territories the newly enlarged group will have
duplicate operating and holding companies. These individual companies will have
their own separate management structures, IT systems, trading relationships
and intra-group arrangements. Integrating these structures, relationships and
arrangements in the post-acquisition environment can prove to be one of the most
significant challenges that management will have to face.
Baker McKenzie l 7
Experience has taught us that the key to developing an effective post-acquisition

integration plan, implementing it successfully, and overcoming the inevitable
challenges, is the early identification of the overriding strategic and business
objectives of the acquisition and subsequent integration. Provided that these
objectives are realistic and supported by management, and that proper and
prioritized attention is given by the right people at the right time to the planning
and implementation of the integration, the likelihood of delivering on pre-deal
expectations will be significantly increased.
8 l Baker McKenzie
Section 2
Post-Acquisition Integration: Developing and Implementing a Plan
Section 2
Post-Acquisition Integration: Developing and
Implementing a Plan
This section:
•
provides an overview of the ways in which a global integration process can be
managed to maximize the chances of success
• summarizes the more common substantive issues companies are likely to
encounter in planning and implementing integration projects
• sets out an Indicative Sample Timeline and Summary Overview for an
integration project
Several of the key issues covered in this Section 2 are expanded upon in subsequent
sections of this Handbook.
1 An Open and Collaborative Process

Any large post-acquisition integration project raises issues of business strategy, process
management and technical expertise. Once a theoretical integration plan has been
developed, practical implementation issues will prove critical in determining how
quickly the plan can be implemented and how soon the benefits of the integration
can be realized. Human resource considerations, corporate and tax law issues, and
regulatory approval and filing requirements should all be built into the planning
process itself and not be left to the implementation phase. The project team should
give particular focus at an early stage to navigating road-blocks that might otherwise
delay or frustrate the realization of integration goals in many jurisdictions.
A well-run integration process can customarily be broken down into seven phases:
• identification of key strategic objectives
• information gathering
• preliminary analysis and development of overall plan
• initial evaluation of overall plan
• development of detailed step lists
• evaluation and approval of detailed step lists
• implementation of steps in final detailed step lists
Baker McKenzie l 9
Outside advisers are typically engaged throughout the life of the project because
of their technical and project management experience and expertise, and because
the company’s own staff need to focus on day to day business operations. Outside
advisers may also be necessary when competitors are prevented by antitrust laws
from sharing competitively sensitive information. For example, outside advisers can
help to establish clean teams — see Section 4.
However, internal staff are the best (indeed, for the most part, the only) source of
the detailed information that is critical to creating an effective implementation plan.
In particular, they understand the historical perspective of the tax, corporate and
business planning background of the existing structures and how the existing business
works in practice, not just on paper. And ultimately, as these projects are frequently
transformational for the business, the internal team must be sufficiently familiar with
the new plan so that they can both be an integral part of the change management
process required for its implementation and be in a position to manage and sustain the
structure that results at the end of the process.
The best outcomes are achieved when outside advisers and management work closely
together to strike a balance that makes the best use of internal resources but layers on
the particular experience and expertise of the outside advisers and relieves the strain
on already scarce management time. Frequently, however, this balance is not struck
and advisers and management adopt one of two extreme approaches: the “black box”
approach, whereby outside advisers gather data, disappear for some period of time
and then present proposals in a vacuum. This approach fails to take advantage of
existing background knowledge possessed by management and, by excluding them
from development of the plan, does not put management in a position to manage or
promulgate the end structure; or the “shotgun” approach, whereby outside advisers
gather minimal data, and then subject management to a barrage of ideas that “might”
work, effectively putting too much of the onus on management to place the ideas
into the context of the group’s actual circumstances and assess resulting risks.
Although there is no “one-size-fits-all” integration process, a happy medium can be
achieved if it is first understood that identifying the group’s strategic objectives
is predominantly a senior management task and that the process is necessarily an
iterative one. Rather than disappearing from view after the initial strategic discussions,
designated members of senior management should continue to be involved in both
the in-depth information gathering phase and in the strategic and tactical decision
making during the ensuing analysis phase, in particular to navigate competing
priorities across the various functions and constituencies within the business.
1.1 Identification of Key Strategic Objectives

At this first stage of the integration process, the senior management team will need
to decide the relative significance of business goals, timing and implementation,
and prioritize accordingly. It may be that certain geographic regions or lines of
10 l Baker McKenzie
Section 2
business warrant first attention due to their significance for high severances or as
“low hanging fruit” due to their relative ease of integration and the integration
would then proceed on a staggered basis. Alternatively, what may be required is a
comprehensive solution that pursues all regions or business units simultaneously
with, to the extent possible, a single effective “big bang” date for the entire
integration.
The key questions for management to focus on at this first stage are:
•
what key business goals and priorities is the group seeking to achieve by the
acquisition and integration?
•
what are the group’s plans for employee transfers and workforce reductions, if
any?
•
what are the principal legal regulatory operational and IT constraints on moving
assets, entities and people?
•
what are the timing and sequencing priorities?
•
which constituencies/functions need to be involved in the initial planning
process and how will any competing priorities between them be navigated?
•
how will compliance risks be identified and addressed?
1.2 Information Gathering Phase

The information gathering phase requires planned, structured input from all relevant
constituencies, for example, human resources, tax, legal, compliance, treasury, strategic
business development, finance and IT. While this adds some time to the process
of developing a plan, it will pre-empt problems that could otherwise arise in the
implementation phase. It is often the case, for example, that IT compatibility issues can
delay the integration of newly acquired entities into an acquiring group’s existing or
newly designed commercial structure and the time required to resolve these issues will
need to be built into the overall integration plan. On the basis of a clear understanding
of the goals of the integration, the objective of the information gathering phase is to
gather sufficient information and documentation about the entities and assets that
are to be integrated in order to allow the planning and execution phases to proceed
efficiently.
If this exercise begins prior to the deal closing and the parties are competitors, they
should put in place guidelines on the exchange of information required for the
integration planning process for the period between signing and closing. This is the
case irrespective of whether the deal is subject to a merger control standstill period —
see further description in Section 4.
The initial information gathering phase typically involves seeking answers to the
following key questions:
Baker McKenzie l 11
•
in which jurisdictions do the companies within the scope of the proposed
integration operate?
•
which are the operating companies, what business lines are they operating and
how do they “go to market”?
•
where are revenues being generated/bound?
•
where are taxes being paid?
•
what are the tax attributes of the companies?
•
where are the tangible assets?
•
where are the intangible assets?
•
which are the employer companies, and are there works councils/unions/
collective bargaining agreements?
•
are there any non-core businesses or operations?
•
what are the current transfer pricing policies?
To ensure consistency across jurisdictions and to minimize the workload for the
internal team, the information gathering phase needs to be carefully planned by the
central project team with the outside advisers. A comprehensive set of core questions
and document requests should be prepared, with additional tailored questions for
particular jurisdictions where relevant. This should be accompanied by guidance for
the local teams on timing priorities and materiality thresholds. It will be key at this
stage that the project management tools used are fit for purpose, not only to serve
as a well-ordered repository for the documents and data collated but also to enable
progress to be tracked and information to flow between the central and local teams in
real time.
1.3 Preliminary Analysis and Overall Plan Development

Once the initial information gathering process has been carried out, it is necessary
to conduct a preliminary analysis of the information in order to develop an overall
integration plan. The focus in this phase is on developing a plan that will achieve
the integration goals in the most efficient manner from a tax, legal and commercial
perspective.
A primary objective from a tax perspective is to ensure that none or as few as possible
of the steps of the integration trigger material income and capital gains taxes in
any jurisdiction, or notable capital duty, local transfer and documentary taxes. The
following tax objectives also often come to bear:
12 l Baker McKenzie
Section 2
•
the integration of the corporate structure may be combined with a change in
the inter-company commercial relationships of all or some of the combined
group companies so as to manage the group’s overall tax profile
•
the acquired companies may have favorable tax attributes, such as tax incentives
and unused foreign tax credits, and the integration should be conducted in a
manner designed to preserve those attributes, where possible
•
the integration may be structured in a way to take advantage of existing tax
attributes, such as using net operating losses in the acquired entities to offset
taxable income in the existing structure
•
in the United States, there may be opportunities for domestic state and local tax
minimization planning
•
there may be opportunities for minimizing other governmental costs (for
example, customs and VAT planning)
In the preliminary analysis phase, management and the outside advisers will consult
with one another to develop a high-level integration plan. To the extent possible
at this stage, the plan will specify which entities will survive and which will be
eliminated. It will also, where possible, specify the method of integration (for example
“Target France SARL will merge into Parent France SAS,” or “Target UK Limited will
sell all assets and all liabilities to Parent UK Limited and will then be dissolved”). The
overall plan document will be revised and expanded into a detailed step list as the
planning continues.
1.4 Initial Evaluation of Overall Plan

Once the high-level integration plan has been developed, it is important to have the
key constituencies (for example, operations, tax, finance, legal, human resources, IT,
treasury) evaluate it and provide input on any issues the plan presents for them and
any refinements that they wish to propose. Depending on the scale of the integration
project, this evaluation may take place in a single meeting or over several days or
weeks.
It is important to note that developing the overall integration plan needs to be
an iterative process because, as more information is learned about the entities
to be consolidated, new issues and opportunities may present themselves and
the integration goals may need to adapt to the specific circumstances. As the
goals change, more fact gathering may be required to assess their feasibility and
implications. With each iteration, however, the objectives of the integration and the
best way to achieve those objectives should come more sharply into focus, producing
a more detailed and refined plan.
Baker McKenzie l 13
1.5 Development of Detailed Step Lists

As the overall integration plan becomes more refined and settled, it should be
expanded into a fully detailed list of each step necessary to execute the assigned
tasks. The end product will be a comprehensive step list and timetable for executing
the assigned tasks with the names of those responsible for each step and, in the
case of legal documents, the identity of the signatories. From a project management
perspective, the detailed step list will be a critical tool for the implementation phase of
the project, particularly when it has been carefully developed to take detailed account
of issues such as interdependencies across business functions, correct necessary
sequencing of steps, and to flag aspects of the process that may be outside of the
company’s control, such as obtaining third-party consents or liaising with trade
registries to complete filings. Ideally the step list will be hosted on a website rather
than in a static document, so that updates and amendments can be shared among
all interested parties in real time and to enable different “views” of the step list (for
example, summary or comprehensive form, or showing only those steps attributable
to a particular function).
1.6 Approval of Detailed Step List

As with the overall integration plan, it is important to have the key constituencies
within the business and other relevant external advisers evaluate the detailed step lists
and provide their input. Sometimes issues that were not apparent in the overall plan
become apparent when a representative of a specific function sees the details of the
steps that will need to be taken and considers their role in implementing those steps in
the timeframe outlined.
1.7 Implementation of Steps

Management of the implementation of the detailed step list will necessarily vary from
project to project. The best approach will depend on the size of the project, the nature
and geographical scope of the tasks involved and even the management styles and
personalities of the individuals involved. The key to success in this phase is maintaining
open and clear channels of communication about how the implementation is
progressing and what issues are surfacing, and making sure that there is a central
decision maker available who can make executive decisions as and when required. As
these issues arise, it is helpful to revisit the overriding business objectives and design
principles that were articulated by senior management at the earlier stage of the
planning process.
Throughout the execution phase, the detailed step list is a living document that serves
to track the status of tasks and interdependencies. Regular scheduled status calls
with the key members of the internal project team and the external advisers keep the
integration process on track, focusing minds on any open issues and allowing advisers
14 l Baker McKenzie
Section 2
and management to help identify what needs to be done to complete a particular

step. Post-acquisition integrations can take many years to implement and continued
and ongoing management support and guidance is frequently a key determinant to
overall success.
2 Substantive Legal and Tax Issues

Set out below is a summary of the most common legal and tax issues arising in a post-
acquisition integration. The following discussion is by no means exhaustive, as each
project will undoubtedly face its own particular issues, many of which may be specific
to the group and/or its industry sector.
2.1 Due Diligence

As part of the information gathering phase of the project, the company should
undertake a legal and tax due diligence investigation of each of the legal entities
involved (for example, subsidiaries, branches, representative offices) in order to
identify legal, tax and employee relations issues that need to be dealt with before or
during the integration. This investigation should not just delve into the target group
entities, but also — albeit in a measured way — into the existing entities from the
acquirer group with which they will be consolidated. Experienced legal counsel should
be able to provide a detailed due diligence checklist, including such items as:
• determining what assets (tangible and intangible) the entities own
•
confirming which entities have employees (and in what numbers), and the
existence of works councils/unions/collective bargaining agreements or
significant pension liabilities
•
identifying contracts that may need to be re-negotiated, assigned or are subject
to change of control triggers in connection with a share transfer
• identifying governmental permits/licenses/authorizations required for the
business
•
identifying ongoing litigation or compliance issues (eg, data protection issues or
export control matters)
•
identifying valuable tax attributes that should be preserved on integration
where possible
Section 3 sets out a sample checklist covering these and other key due diligence
matters.
The deal team for the acquirer group often overlooks opportunities to begin the due
diligence process for the integration phase before the acquisition is complete (ie,
during the acquisition due diligence itself). Ideally, integration diligence should start
Baker McKenzie l 15
upon reaching deal certainty. It typically becomes increasingly difficult to gather

the information and documentation needed to conduct an effective and efficient
integration if it is entirely left until after the acquisition closes. As time passes,
people who worked for the acquired companies often depart, taking institutional
knowledge with them, and those who remain are often not as highly motivated for
the task of gathering required documents and facts as they were during the pre-
acquisition phase. Furthermore, it is often much more cost effective to leverage off
of the, often considerable, resources marshalled for the acquisition due diligence to
address consolidation due diligence issues. However, it is important to bear in mind
that, if integration planning is set in motion before completion of the acquisition
of a competitor, attention must be paid to antitrust restrictions on the sharing of
information. See Section 4 for more details.
2.2 Evaluating Local Statutory Mergers vs. Asset Transfers

In many jurisdictions, the local corporate laws provide for legal entities to be
consolidated by way of statutory mergers. In these jurisdictions, the alternative
approaches of merger versus asset sale and liquidation should be compared to
see which one best achieves the integration goals. Statutory mergers are often
advantageous because the assets and contracts of the non-surviving entity generally
transfer automatically upon the merger, whereas an asset sale involves the separate
transfer of assets and contracts. Asset sales can therefore be cumbersome, for
example, where there is a requirement to register any change of ownership of certain
categories of assets or where the approval of a third party or governmental body
may be needed for the transfer of an asset or contract. Local merger regimes often
also have tax benefits. Indeed, even if the only benefit of the local statutory merger
regime is that the transaction is tax-neutral for local tax purposes, this benefit can
be substantial.
Some jurisdictions have specifically introduced merger legislation; one such
jurisdiction is Singapore, where pursuant to the Singapore Companies Act two or
more Singapore incorporated companies can be amalgamated. Ireland implemented
new merger legislation in 2015 and Hong Kong introduced a simplified domestic
merger process the year before.
However, a number of jurisdictions do not have a merger statute that allows local
companies to merge. The UK, for example, does not have legislation providing for
domestic mergers. In these jurisdictions, the only effective choice available for
combining two local companies may be some variation on the theme of selling (or
otherwise transferring) the assets of one company to the other and then liquidating
or dissolving the seller entity. From a tax perspective, these jurisdictions often allow
for a business transfer between group companies resident in the same jurisdiction
for tax purposes to be effected without triggering a taxable gain and therefore
achieve the objective of consolidating the two local businesses in a manner that is
16 l Baker McKenzie
Section 2
functionally equivalent to a merger from a local tax perspective. Whether a particular

transfer is tax neutral may depend on the nature of the assets to be transferred and
so the specific rules should be considered in each case.
If a business transfer or merger is not possible or desirable, two further ways in
which the businesses of two legal entities can be effectively consolidated are by
utilizing local tax consolidation/group rules or by having one company operate the
other’s business under a management contract, or business lease, during an interim
period. However, these options do not result in full integration with a single entity in
the jurisdiction. Further details are set out in Section 5.
2.3 Transferring Assets

Where the local integration method chosen or available requires the transfer of
assets, the steps to be taken to effect the transfer will vary depending on the
category of assets in question, and in some cases will involve registration formalities.
For certain categories of assets, a simple asset sale and purchase agreement will
suffice to transfer title. In the case of other assets, such as real estate, certain types
of intellectual property or vehicles, the change in legal title may have to be recorded
with governmental or regulatory authorities to be effective. The transfer of shares in
subsidiaries will, in almost all cases, give rise to certain formalities in the jurisdiction
of incorporation of the subsidiary. In some cases, approval of a governmental agency
must be obtained before transferring governmental licenses, permits, approvals or
rulings. In certain jurisdictions, even a general asset transfer agreement between
the transferor and transferee companies may have to be filed with local authorities
and drafted in the local language. Bulk sales laws may apply to significant asset
transactions with the effect that liabilities and creditors’ rights transfer by operation
of law with the assets.
In any case, local insolvency and creditor protection laws should be taken into
consideration (for example, those laws prohibiting transactions at an undervalue)
when planning and implementing the asset sale, particularly if there is a plan to
subsequently wind up the transferor entity. In addition, consideration should be
given to corporate benefit issues and directors’ statutory or fiduciary duties in
respect of both the transferor and transferee entities.
A key issue in asset transfer jurisdictions is ascertaining the purchase price to
be paid for the assets to be transferred. Often the interests from tax, corporate
law, accounting and treasury perspectives will compete. For example, a sale by a
subsidiary to its parent at less than market value may be an unlawful return of
capital to the shareholder. However, a sale at market value may result in significant
goodwill being recognized by the parent company for local statutory accounting
purposes. Depending on the group’s or local entity’s goodwill amortization policy, a
“dividend blocker” could be created at the level of the parent, as the amortization
created by the acquisition is expensed through the parent’s profit and loss account.
Baker McKenzie l 17
2.4 Novating and Assigning Contracts

In a local asset sale or merger, existing contracts, such as customer agreements,
office leases, equipment leases, service agreements, distributor agreements,
supplier agreements and a host of other operational agreements, will have to be
transferred to the surviving entity. In a merger, these assignments almost always
occur automatically by operation of law, but in other cases steps have to be taken to
effect the novations or assignments (see Section 10 for a summary by jurisdiction).
These steps may range from giving a simple notice of assignment to all third
parties to obtaining written consent from the relevant counterparty to permit the
novation (by way of a tripartite contract) of all of the rights and obligations of the
transferor entity to the transferee entity. These steps should be part of the overall
communications plan. As noted above in the discussion of the due diligence process,
it is prudent to review contracts, particularly those that are material to the business,
in order to determine whether they are freely transferable or whether consent is
required.
Even where the entities in question are being consolidated by way of a merger, it
may be advisable to review the (material) contracts of both entities to determine
whether they contain any provisions that may be triggered by the merger, such as
provisions giving the counterparty the right to terminate upon a merger or change
in control. If the surviving and disappearing entities use different suppliers for the
same product or raw material and it is intended to rationalize the supply chain, it will
be necessary to identify the likely cost of cancelling those supply contracts which
will not be continued and/or to consider whether the third party has the bargaining
power to impose new contractual terms that consist of the best of both pre-existing
arrangements.
2.5 Preserving Tax Attributes

Favorable local tax attributes, such as current year’s net operating losses or carried
forward tax losses (Net Operating Losses, “NOLs”), can provide a significant cash
tax benefit to the company if they can be preserved. In many jurisdictions, how a
consolidation is executed (including any share pre-positioning steps) will have an
impact on whether such losses survive. The desire to preserve tax attributes may not
only drive how the consolidation is effected but also which entity will be chosen to
be the surviving entity. Further information relating to NOLs preservation is provided
in Section 4.
2.6 Minimizing Corporate and Shareholder Level Taxes

A primary tax objective is to minimize the tax cost of effecting the consolidation
otherwise these can have a significant adverse impact on the integration budget.
Corporate income taxes can be levied at each step of the consolidation, both from a
18 l Baker McKenzie
Section 2
local and shareholder perspective. The potential tax cost of consolidating is likely to
be a key driver in how the consolidation is effected.
In addition to corporate income taxes, it is important to assess whether any real
estate transfer taxes, stamp taxes or transfer taxes could be levied. Although such
taxes may not be significant, they are a true out-of-pocket cost to the company and
should be avoided where possible. For that reason, it should be considered whether
the relevant entity can avail itself of any exemptions for intra-group transactions
and, in particular, whether the conditions for such relief are satisfied in a specific
case. Some countries, such as Austria tax the transfer of real estate where the entire
issued share capital of a company is transferred, which can result in tax arising both
on the share transfer and the subsequent merger. Further information is provided at
Section 4.
2.7 Severance and Restructuring Costs

Most integrations result in some severance or other restructuring costs. In most
jurisdictions, provided appropriate precautions are taken, these costs are deductible
for local income tax purposes. There are nevertheless often a number of strategic
considerations that should be taken into account when deciding when and how, and
which entity should be used, to incur restructuring costs such as those arising from
the elimination of employees. Domestic and foreign tax consequences are among
these strategic considerations.
2.8 Tax Optimization Strategies

A variety of foreign tax planning opportunities may arise in connection with any
international integration. For instance, in many jurisdictions there could be an
opportunity to obtain a tax basis increase or “step up” in the assets of the local
company transferring its assets, sometimes without any local tax cost. It may be
possible to insert debt into the surviving company in connection with the integration
and use the interest deductions to reduce the surviving company’s taxable profit
(subject to the application of any local tax rules restricting deductibility of interest
rules).
Further information in relation to tax optimization strategies is set out at Section 4.
2.9 Pre-Integration Share Transfers

It is often preferable, as a pre-step to a merger in a particular jurisdiction, to
first create a share ownership structure whereby the shares of the entities to be
consolidated are in a direct parent/subsidiary or brother/sister relationship with
each other. In most jurisdictions, such as the state of Delaware or Germany, short-
form merger procedures apply if such a structure is in place, meaning that they are
cheaper and easier to implement.
Baker McKenzie l 19
A further benefit to a parent/subsidiary or brother/sister relationship being

established for the integration is that, following the merger, the surviving subsidiary
will have a single shareholder rather than a split ownership structure — making
future distributions, redemptions and restructurings easier to implement. If the
subsidiaries are not in a parent/subsidiary or brother/sister relationship prior to the
merger, each shareholder will usually need to receive its pro rata portion of the
shares in the consolidated entity. This requirement creates practical, financial and
timing issues as comparable financial information will be required for the merging
entities.
Even where the integration is to be achieved by way of an asset transfer rather
than a merger, creating a parent/subsidiary relationship between transferor and
transferee as an initial step can be beneficial from the perspective of enabling a
more straightforward clean-up of any consideration debt, if the intention is to
subsequently dissolve the transferor entity. Whether this structure is desirable from
a tax perspective will depend on the specific facts that must be considered in the
round, eg, whether the pre-positioning of the shares triggers a stamp tax that could
otherwise be avoided by leaving the shares in situ, or whether the transferor entity
is required to withhold tax from any distribution under the new holding structure
that would not otherwise be triggered under the existing structure.
A number of methods can be used to achieve a parent/subsidiary or brother/sister
relationship prior to an integration, including contribution, distribution, sale, or cross-
border merger, as discussed in more detail at Section 9.
Most pre-integration share transfers involve the contribution of subsidiaries
downstream raising various issues, including tax. One corporate law consideration
is whether the company which is receiving a contribution consisting of shares
in another company has to issue one or more new shares for local company law
purposes. Another consideration which may affect how the group is restructured
will depend on the ultimate destination of the company being transferred. If this
destination is several tiers down, transferring through each of the shareholding tiers
may create considerable work. A direct contribution to the ultimate destination
will invariably involve the issue of new shares by the company receiving the
contribution. In some situations this is undesirable since it can complicate the
group structure; in other situations it can be an advantage. For example, a direct
shareholding by a parent company in a lower tier subsidiary may give rise to a more
tax efficient dividend flow. Alternatively, it may enable the parent company to
access profits of a subsidiary that previously have been “blocked” by an intermediate
subsidiary company that was unable to declare and pay dividends because of an
earnings deficit on its balance sheet.
20 l Baker McKenzie
Section 2
2.10 Employment Law Considerations

Where the integration involves an asset transfer, it will normally be necessary to take
some additional steps to transfer employees. Commonly this will be by termination
and rehire of the transferring employees, but in some jurisdictions, mainly in the EU,
the employees should transfer automatically by law. In a merger or asset transfer
(and very occasionally on a share transfer) there may also be obligations to inform
and potentially consult with employee representatives such as works councils, trade
unions or bodies elected specifically for this purpose. In some cases, those bodies
have a right not only to be informed and consulted but also to deliver an opinion
on the plans for the local integration before they are finalized and implemented. It
may be a significant violation of local law to make changes in the management of
the local company or undertake an integration transaction prior to conclusion of a
formal information and consultation process. Due diligence should therefore obtain
details of all employee representatives, unions, etc. and input as to the employee
relationship environment in each country, as appropriate time for information and
consultation processes will need to be built into the step list. Depending on the
key strategic objectives and, importantly, the desired timing of the integration
transaction, consultation requirements can have a material impact on the transaction
structure. Commercial concessions (including moratoriums on dismissals or
guaranteed severance terms or an agreed social plan) may be necessary in order to
secure works council or trade union cooperation.
One of the common objectives of a business acquisition followed by an integration is
to eliminate duplicate functions, thereby streamlining the operation of the combined
businesses. In addition, there is often a desire to harmonize the compensation
packages, benefits, and working conditions of the workforce.
In many jurisdictions, workers have significant protection from changes to working
conditions and benefits and protection against dismissal. In those countries, if an
employer changes an employee’s working conditions or terminates an employee in
connection with an acquisition and the subsequent local integration, the employee
can be entitled to compensation or reinstatement. It may even be the case that
changes to employment terms are simply ineffective, allowing the employees
to demand their rights under the old terms at any time. In addition, any such
proposals to change working conditions or dismiss employees in connection with
an integration transaction would be key areas for consultation with employee
representative bodies and are likely to have a material impact on timescales for the
transaction.
Baker McKenzie l 21
2.11 Losing Directors and Officers

In the aftermath of an acquisition, it is very likely that some of the executives of
the target company, and possibly also of the acquiring company, will leave. These
departures will likely result in the loss of institutional knowledge. In addition, these
individuals will need to be replaced as directors of subsidiaries (if they have been
serving as such) so that it is possible to continue to take corporate actions at the
subsidiary level to effect the integration. A similar issue arises with respect to
individual employees who are serving as nominee shareholders to satisfy minimum
shareholder or resident shareholder requirements in a particular jurisdiction. If these
individuals have left employment with the company, they may have to be tracked
down to sign share transfer or other documents.
2.12 Waiting Periods and Notices

In many jurisdictions, government or tax clearances are required prior to the merger
or liquidation of the local entities. Even in jurisdictions where government clearances
are not required, public notices are often necessary and statutory waiting periods
may apply. These formalities can delay the integration. Accordingly, it is important to
identify the jurisdictions where immediate integration is desired so that the required
applications and notices can be filed as soon as possible. In cases where there are
statutory or practical delays in implementing the integration, alternative strategies
may be available for dealing with the delays to minimize operational inconvenience
or tax exposure, including: (i) having one company operate the other’s business
under a management contract during the interim period; (ii) selling the business to
the surviving company, with a subsequent merger to eliminate the empty company;
and (iii) making the merger retroactive for tax and/or accounting purposes under
local law. In any case, where the delay is significant or there is a particular strategic
objective, for example, to have the local businesses integrate on a certain date, these
alternatives should be explored.
2.13 Corporate Compliance Status

The due diligence exercise may highlight deficiencies with the corporate compliance
status of the group and so it may be necessary to take corrective action before
integration can be started or concluded. For example, if acquired subsidiaries are
technically insolvent or have not complied with their annual corporate filing or
other maintenance requirements, it will typically be necessary to remedy these
deficiencies before any significant integration steps, such as mergers or liquidations,
can be undertaken. Integrations are frequently delayed because the entities that
are to be eliminated have not been properly maintained and there is a need to
create statutory accounts, hold remedial annual meetings and make the necessary
outstanding tax and corporate filings. These problems can be compounded if local
company directors have left, and it can be difficult to persuade management to
22 l Baker McKenzie
Section 2
serve on the boards of local subsidiaries that are not in compliance with their
obligations. Further details of these issues are set out in Section 8.
2.14 Branches, Business Registrations and Subsidiaries

It is important not to overlook any branches, representative offices and other
business registrations of entities that are disappearing in the integration. In many
cases, it would be a mistake simply to merge one subsidiary into another on the
assumption that any branches of the disappearing entity will automatically become
branches of the merged entity. Most government authorities view a branch as
being a branch of a specific entity and, if that entity disappears in a merger, the
survivor will have to register a new branch to account for its assets and activities
in the jurisdiction. In some cases, merging an entity before de-registering its
branch or representative office can cause great difficulties with the authorities
in the jurisdiction where the branch was registered, as these authorities will treat
the branch as continuing to exist, and therefore having ongoing filing and other
obligations, until it is formally de-registered. Furthermore, the process of de-
registration may be greatly hindered or may be technically impossible if the entity
no longer exists.
Similar complications can ensue if it is assumed that shares of subsidiaries will
automatically transfer when the original parent company is merged into another
group company. Effecting the local legal transfer of the shares of the subsidiaries can
be problematic if not identified and planned in advance.
2.15 Corporate Approvals

Integrations typically involve non-routine transactions (for example, the sale of
all of a subsidiary’s assets to an affiliate). The individual directors or officers of
the entities involved in the project will not usually have the necessary corporate
authority to effect those transactions. Therefore, it is necessary to consult applicable
local law and the articles of association or other constitutional documents of the
entities involved to determine if there are any corporate restrictions on the proposed
transactions that may require the constitutional documents to be amended, and in
any case to take appropriate steps to authorize the transactions, such as passing
board resolutions and/or shareholders’ resolutions. Thorough documentation
recording corporate decisions also assists in memorializing the background to
decisions and can be helpful where the transactions are reviewed later as part of
accounting or tax audits.
2.16 Post-Integration Matters

Once the integration steps are completed in a particular jurisdiction, the process
will begin of completing the relevant accounting entries to reflect the various
Baker McKenzie l 23
transactions both at a group and local statutory level, updating legal books and
records, making any post-integration legal filings as required, and, for example,
making any applications to obtain relief from stamp taxes. In order to keep a clear
paper trail of the steps and the decisions taken, comprehensive “closing binders”
of the legal documents should be compiled (most often now in electronic form).
This will prove invaluable in the event that the impact of a particular transaction is
challenged by any authority in the future.
2.17 Communication Plan

Communication plays a critical role in the development and implementation of a
robust integration plan and is a key thread underpinning and supporting many of
the legal and tax issues to be considered and addressed.
All integrations should have a well-developed communication plan which runs
through the life of the project, though clearly more activity might be expected in
the initial stages of the process. The communication plan should address internal
communications to all staff, legally required communications to works councils,
unions and employee representatives, as well as external communications, which
can include government authorities, suppliers, customers and joint venture partners.
Given the breadth of the potential audience, ie, the number of parties that could be
affected by or have an interest in the integration, a well-structured plan is a valuable
resource and important element of an effective integration process.
24 l Baker McKenzie
Section 3
Process: Process Map, Timeline and Checklist
Section 3 This section focuses on the process of a post-acquisition integration. The process
map illustrates the key planning steps and actions involved and highlights the
Process: Process Map, Timeline and Checklist iterative nature of certain parts of the process; the sample timeline shows an
indicative schedule for an integration project; and the checklist sets out the main
focus areas for the information gathering and planning processes. Together, these
Post-Acquisition Integration — Summary Overview resources provide a robust starting point for any post-acquisition integration project.
NB. Some steps may commence prior to closing Acquisition.
Communication
Initial Steps Develop Overall Integration Plan

Analyze & Integration Due
Start Preparation of Evaluate & Preparation of
Determine Key Diligence,
Overall Integration Finalize Overall Detailed Integration
Objectives including
Plan Integration Plan Step Lists &
Compliance Risk Timetable
Assessment
Project Planning
& Set Up
Define Interim Complete Integration / Remedial Steps Develop Business Model

Operating & Documentation Identify Issues & Remedies
Guidelines
Complete Determine
Compliance Business Model
Integration Program for Integrated
Appoint Clean
& Remediation Operations
Teams
Finalize & Preparation of

Implement Works Council
Implement Share Maintain Detailed Financial
Mergers & Asset Consultation / HR
Pre-positioning Integration Step Statements &
Complete Transfers Aspects
Lists Valuations
Accounting
End Entries & Closing
Binders Dissolution of Tax Registrations Antitrust Advance Tax
Non-trading & Corporate Notifications
Rulings
Entities Filings Required
Baker McKenzie l 25
Post-Acquisition Integration — Indicative Sample Timeline
Tasks Mth 1 Mth 2 Mth 3 Mth 4 Mth 5 Mth 6 Mth 7 Mth 8 Mth 9 Mth 10 Mth 11 Mth 12
1 Initial steps (may commence prior to closing of acquisition)
(a) Analyze & determine key objectives
(b) Project planning & set up
(c) Define interim operating guidelines
(d) Appoint clean teams
2 Integration due diligence, including compliance risk assessment
3 Develop overall integration plan
(a) Preparation of overall integration plan
(b) Evaluate & finalize overall integration plan
4 Preparation of detailed integration step lists & timetable
5 Develop & determine business model for integration operations
6 Identify issues & remedies relating to:
(a) Works Council / HR aspects
(b) Preparation of financial statements and valuations
(c) Antitrust notifications required
(d) Advance tax rulings
7 Finalize & maintain detailed integration step lists
(a) Finalize detailed integration step lists
(b) Maintain detailed integration step lists
8 Complete integration / remedial steps & documentation
(a) Complete compliance integration program and remediation
(b) Implement share pre-positioning
(c) Implement mergers & asset transfers
(d) Dissolution of non-trading entities
(e) Tax registrations & corporate filings
9 Complete accounting entries & closing binders
10 Communication
26 l Baker McKenzie
Section 3
Integration Checklist
A. Information Gathering
1. Identification of Strategic and Key Objectives

1.1. What are the group’s business goals and priorities?
1.2. Which entities and jurisdictions will be involved in the integration?
1.3. What are the overall integration objectives?
1.4. Are there any key country-specific integration objectives?
1.5. Are there any timing and sequencing priorities?
1.6. What are the group’s plans for employee transfers and reductions in the
workforce?
1.7. Are there any entities that should not be integrated and/or liabilities that
will need to be isolated (for example, environmental liabilities or potential
subsequent disposal to employees/pensions)?
1.8. What are the constraints on moving assets, entities and people?
1.9. How will compliance risks be identified and addressed?
2. Key Information Gathering

2.1. Which countries does the business operate in?
2.2. Where are revenues being generated/booked?
2.3. Where are taxes being paid?
2.4. Where are the tax attributes located (for example, NOLs, tax credits)?
2.5. Where are the tangible and intangible assets?
2.6. What are the company’s and the newly acquired target’s current operating
models and transfer pricing policies?
2.7. What are the regulatory regimes governing the business?
2.8. Are there any restrictions arising from past transactions or restructurings?
2.9. Where are the employees (and employing entities) located?
2.10. Are any of the relevant entities subject of litigation proceedings or disputes
(eg, tax authority disputes) that could be an impediment to integration?
Baker McKenzie l 27
2.11. Do any of the relevant entities have beneficial tax rulings?
3. Proposed Day One Action items

Is the group proposing immediate changes to:
• directors and/or officers
• financial year end
• registered offices
• powers of attorney/bank mandates
• entity conversions (eg, from corporation to check-the-box entity)
4. Local Due Diligence Review

Following the identification of the high-level strategic objectives and
characteristics of the group, the next stage is a more detailed information
gathering phase. This process will require extensive input from the local
teams of both the acquiring and the target business. A local due diligence
questionnaire is a helpful tool for obtaining the necessary information. See
Exhibits A and B at the end of this Section 3 for checklist examples for both
companies and branches.
4.1. Identify information obtained as part of the due diligence process conducted
for the acquisition of the target business.
4.2. Collate company information (see Exhibit A at the end of this Section 3 for a
detailed sample checklist).
4.3. Collate branch and representative/liaison office information (see Exhibit B at
the end of this Section 3 for a detailed checklist).
4.4. Obtain details of any works council/union/employee representation, including
regional forums such as European Works Councils, and any employee change in
control/severance plans that may trigger benefits on an integration.
5. Technology
5.1. Evaluate IT systems and the requirements of the participating entities,
including the impact of the integration on financial reporting and supply chain
arrangements.
5.2. Carefully plan IT integration.
5.3. Prepare the groundwork to ensure that the ERP (enterprise resource planning),
invoicing and accounting IT systems are capable of, and are properly
28 l Baker McKenzie
Section 3
configured to begin, processing transactions for the newly integrated entities.

For example, if the acquired subsidiaries are using a different order processing
and invoicing software, ensure that after the integration the acquired company
products can be properly invoiced using the pre-existing order processing and
invoicing software.
5.4. Ensure IT systems are configured to accommodate any changes in the order
flow or other intercompany commercial arrangements that may be planned
as part of the integration, for example, switching to a buy-sell distributor
arrangement from a commissionaire structure.
5.5. Confirm that IT systems will continue to fulfill regulatory compliance
requirements.
6. Regulatory and Antitrust Issues

6.1. Is the transaction subject to any suspensory merger control approval? If so,
the parties may not close their transaction until the end or expiration of the
merger control review or waiting period. Parties who “jump the gun” and begin
to consolidate operations may be subject to significant financial penalties.
6.2. If merger control approval was obtained prior to closing the acquisition,
does this cover post-acquisition integration? In some countries intra-group
transactions themselves may also be subject to merger filings.
6.3. Are the parties to the transaction competitors? (See Section 4 for further
details.)
6.4. Does integration require any foreign investment approvals or registrations (for
example, registration of new shareholders)?
6.5. Does integration require any exchange control notices or approvals?
6.6. Do local laws require the surviving entity to obtain:
• general
• asset-specific
• industry specific
• governmental
permits, licenses or approvals in relation to continue the merging/transferring
entity’s business, for example, general laws and regulations governing general
business licenses and permits, transfer of intellectual and real property, or
industry-specific laws and regulations covering areas such as defense, media,
food and drug, health, safety, pharmaceutical, utilities, nuclear, brokering,
banking, securities?
Baker McKenzie l 29
6.7. Has the merging/transferring entity received any governmental subsidies,

grants or other incentives?
If so, does the integration require notice to or approval by the relevant
government agency?
7. Compliance Risks and Programs

7.1. Building on any pre-acquisition due diligence, conduct risk assessment as to
target’s key risks across areas such as anti-bribery and corruption, antitrust/
competition law, export controls and sanctions, exposure to liability, eg,
environmental and customs legislation, as well as any sector-specific risks. See
Section 8 for further details.
7.2. Review and consolidate compliance programs for example:
•
local compliance and corporate governance regimes (including auditor
independence, certification and reporting, directors’ loans, ethics,
whistleblower protection and document retention issues)
• boycott
• export controls
• bribery/corruption
• money laundering
• antitrust/competition
• data protection
• tax, including customs
B. Planning the Integration
8. Integration Method
The information gathered through due diligence will allow planning to
commence in respect of the appropriate local integration method(s).
8.1. Identify which entity should be the surviving entity in each jurisdiction, after
careful consideration of all relevant factors, for example:
• preservation of tax attributes
• liabilities of each entity
30 l Baker McKenzie
Section 3
• impact on employees and employee representative bodies

• third-party contracts of each entity
• internal operational and “political” considerations
8.2. Identify local integration method:
• does local law provide for a statutory merger?
•
will the integration have to be accomplished by means of a business/
asset transfer with subsequent dissolution and liquidation of the
transferring entity?
• which method of integration is the most tax efficient?
8.3. Should the entities pre-integration be structured as:
• brother/sister
• parent/subsidiary
8.4. What documentation is required to effect the proposed integration?
Documents may include:
• asset transfer agreements
• corporate resolutions
• notarial deeds
• registrations with the local commercial registry
8.5. Will the chosen integration method require the establishment of new entities?
If so, consider the impact on timing. In some jurisdictions the establishment
of a new entity may take several months and may also require new tax
registrations, bank accounts, leasehold/freehold premises, etc.
8.6. Will the chosen integration method require the registration of new branches?
Branches of the merging entity may not automatically transfer to the surviving
entity in a merger. If new branches are required, consider the timing. For
example, in China, the establishment of a branch may take between two to
three months in total and if the branch carries out manufacturing activities, the
branch may also need to apply for an environmental impact assessment which
can take up to six to eight weeks. Further, a branch may require additional pre-
approvals if operating in certain industries, for example, retail or logistics.
8.7. What is the approximate timeline for the chosen integration method, from the
initial instructions or from the date on which all information (including financial
statements) becomes available, to the effective date of the integration?
Baker McKenzie l 31
8.8. If the integration method is a merger, can the merger be made effective
retrospectively for tax and accounting purposes? If so, what is the deadline for
filing the merger application, for example, in Germany, the filing must be made
within eight months of the date of the merger accounts?
9. Financial Requirements
9.1. What financial statements or valuations are required for the chosen integration
method (including any share transfers)?
9.2. What are the requirements with respect to valuations (eg, are independent
valuations required)?
9.3. Are there audit or auditor review requirements in connection with the
integration steps?
9.4. Will the auditors of the target group be changed? If yes, how will this impact
the timetable for preparation of accounts required for integration?
9.5. What is the proposed basis for calculating the purchase price for asset
transfers?
9.6. Anticipate and plan for funding of costs and integration.
10. Transferring Assets

10.1. What types of assets will be transferred? For example:
• tangibles
• intangibles
• contracts, including leases
• real estate
• vehicles
10.2. Should any problematic or onerous contracts be retained?
10.3. What documents/steps are required to transfer each type of asset?
•
is inclusive wording in a general asset or business transfer agreement
sufficient?
•
is an additional form or deed and/or registration required, for example,
notarial deed to transfer title to real estate?
10.4. What, if any, are the consideration requirements under local law? For example,
is there a need to reflect a cash purchase price in the transfer agreement, or a
specific currency requirement?
32 l Baker McKenzie
Section 3
10.5. Does the consideration need to be allocated among assets? For example:
•
for exchange control purposes
•
for income tax purposes
•
for VAT purposes
•
for stamp duty/transfer tax purposes
10.6. Do any of the contracts (for example, office leases, equipment leases, service
agreements, customer agreements, licenses, supplier agreements) contain:
•
notice requirements?
•
approval requirements for assignment or, for example, change of control
clauses?
10.7. Will governmental or regulatory licenses/permits transfer automatically or do
local laws require prior approval or any registration?
10.8. Does the integration trigger income taxes and/or are transfer taxes, VAT or real
estate taxes payable?
•
if yes, are intra-group exemptions available and if so, does relief arise
automatically or need to be claimed?
•
if not, is it possible to mitigate the tax cost?
11. Employment
11.1. Consider:
•
local employment laws
•
employment agreements (or forms thereof)
•
employee policies
•
works councils, collective bargaining or other labor agreements
•
requirements for notice, consultation or other steps in relation to
employees and their representatives
11.2. Identify effect of local employment law and collective bargaining or other
labor agreements requirements on timing of chosen integration method.
11.3. If workers’ representatives, works councils, trade unions or other employee
collective bodies exist, determine whether prior notification, consultation or
approval is required.
Baker McKenzie l 33
• If so, analyze any notice and waiting periods required by law or by
collective bargaining agreements. In addition, consider the employee
representation environment, for example, is it positive, hostile or neutral?
• re there any concessions that can readily be made to assist
A
consultations (for example, a moratorium on dismissals or agreed terms
for a social plan)?
11.4. Determine whether the integration method will result in any changes of
employment relationships.
11.5. If employees will be transferred from one entity to another:
•
does the employment transfer automatically on the same terms and
conditions?
•
is an offer and an acceptance by the employees, termination and rehire or
a tripartite agreement required?
11.6. If an offer and acceptance, termination and rehire or tripartite agreement is
required:
•
when
•
how (nature of written offer and any termination/resignation
requirements)
•
upon what terms (for example, is a severance payment mandatory in any
event?)
must such offers be extended?
11.7. If employees do not accept any new offer of employment, object to the
transfer of their employment, or are to be terminated, what are the:
•
local notice requirements?
•
severance/termination indemnities payable?
11.8. Identify opportunities for planning redundancy terminations to minimize
notice and severance liabilities and maximize the deductibility of such costs.
11.9. If there is no entity or branch present in a jurisdiction, determine which entity
will be the employer of the assumed or hired employees.
11.10. Determine whether local law requires a local employer and, if so, consider
establishing a subsidiary, branch or other legal presence in such jurisdictions.
11.11. Confirm payroll transfer requirements and whether the new employer of the
assumed or hired employees has to register as an employer, for example, for
tax or social security purposes.
34 l Baker McKenzie
Section 3
11.12. Confirm whether the change in employer impacts any visas and work permits
and the timing of the transfer of such visas and work permits.
11.13. Confirm whether there are any independent contractor or outsourcing
agreements and determine impact of the post-acquisition integration on such
agreements.
12. Employee Benefits/Equity Awards

12.1. What are the employee benefit/equity award considerations in connection with
employee transfers? For example how will:
•
outstanding equity awards be treated?
•
employee benefit plans be harmonized?
12.2. Identify all employee benefit and equity plans covering employees involved in
the integration.
12.3. Identify any intercompany agreements related to the cost allocation of
employee benefit/equity awards.
12.4. Identity any plan prospectuses or summary plan descriptions.
12.5. Identify any trustees, share plan administrators or brokers associated with the
employee benefit and equity plans.
12.6. Identify all governmental approvals related to employee benefit and equity
plans
12.7. Identify KPIs (key performance indicators) and bonus schemes and possible
changes, amendments or other steps which will be required.
12.8. What are the required annual employer contributions, if any, for the employee
benefit plan? Are such contributions current?
12.9. What are the required annual, tax, regulatory or other filing and reporting
requirements, if any? Have these requirements been met?
12.10. Have assets been set aside to fund or finance the employee benefit plan
obligations?
•
are such plans fully funded?
•
do such assets appear on the balance sheet of the business?
12.11. Will the integration trigger any funding obligation? For example, in relation to
pension schemes that are in deficit.
Baker McKenzie l 35
12.12. Will there be a transfer of assets or insurance policies to fund or finance the
employee benefit plan obligations?
12.13. Which employee benefit/equity plans will be consolidated or terminated at the
closing of the local reorganization?
•
identify and assess any contractual impediments (for example, notice
requirements, early termination penalties, negotiated benefits) as well
as any tax or regulatory requirements (for example, regulatory filing and
reporting requirements)
•
revise any plan prospectuses or summary plan descriptions to reflect the
consolidated plans
•
ensure any blackout windows or trading restrictions are considered when
consolidating or terminating equity plans
•
obtain any necessary corporate authorization or approvals to consolidate
or terminate plans
12.14. What terms apply to outstanding equity awards?
•
how do these terms differ from the company’s other equity grants?
•
ensure that different terms can be administered appropriately
12.15. Determine whether works councils have co-determination or consultation
rights with respect to any equity plans.
12.16. Are any tax/regulatory or other filings or governmental approvals required with
respect to the integration of the employee benefit/equity plans?
•
were outstanding awards subject to tax-qualified status and can such
status be preserved in the integration?
•
are additional regulatory filings required?
13. Intellectual Property

13.1. What is the current intellectual property:
•
ownership structure (legal and beneficial)?
•
licensing structure?
13.2. What is the desired intellectual property:
•
ownership structure?
•
licensing structure?
36 l Baker McKenzie
Section 3
13.3. Evaluate tax optimization strategies arising in connection with restructuring

intellectual property holding and licensing structure.
13.4. Analyze intercompany license and other intellectual property agreements for
overlap and inconsistencies and reconcile them.
13.5. Where appropriate, transfer existing trade marks and other intellectual
property to reflect the integration and record transfers, if required.
13.6. Are any third-party consents required for the contemplated transfers?
13.7. Consider the availability and protection of new trademarks.
14. Director, Officer and Other Management Positions

14.1. What director or officer resignations or new appointments will be required?
Confirm any nationality, residency and/or qualifying shareholding requirements
under local law.
14.2. Have any of the directors, officers or other signatories left or will any of them
leave the organization following closing?
14.3. What are the employment issues, if any, related to any changes in position
and/or scope of authority as a result of the realignment of management (for
example, constructive termination)?
•
evaluate the need to replace any directors, officers or other signatories
whose position will change to ensure that authorized signatories are
available for the execution of the restructuring documentation
•
consider change of reporting lines/delegated authorities
14.4. Identify updates to directors’ and officers’ insurance policies and consider
update to any contractual indemnities.
14.5. Review existing powers of attorney and other delegations of authority
(including bank account signatories) and identify any changes required.
15. Claims and Litigation

15.1. Review any pending claims and litigation of the entities involved in the
integration and identify impact of assignment of claims (by operation of law in
the case of a merger or otherwise) on ongoing litigation.
15.2. Identify notification requirements with regard to the opposing side and, in case
of litigation, relevant courts, arbitrators or mediators.
15.3. Make appropriate notifications of changes as required under contracts to
which merging/transferring entities are a party.
Baker McKenzie l 37
16. Banking, Finance and Treasury

16.1. Review credit and financing agreements to determine whether notice of, or
approval for, the proposed integration is required.
16.2. Do any of the credit arrangements provide for mandatory waiting periods?
16.3. Have any assets, such as plant and machinery or shares in subsidiaries, been
provided as security to any financial institutions?
16.4. How will the integration impact pre-existing cash pooling or other group
treasury services?
16.5. Update security arrangements where required.
16.6. Review banking arrangements for the business and consider rationalization.
16.7. Are any original share certificates deposited with a bank?
17. Data Protection

17.1. Identify target’s privacy policies and compliance structure.
17.2. Is personal data (for example, customer accounts, employee records, marketing
databases) held by the target entity to be integrated with data held by the
acquiring entity?
If yes, are the acquiring entity’s uses of personal data broader than those of
the target entity or vice versa?
To the extent that the merging/transferring entities are subject to the data
protection laws of EU countries, the following issues will generally be relevant
(although each EU country will have its own specific requirements based on
these general points). In countries outside the EU, the laws governing data
protection vary greatly.
17.3. Will post-integration uses of personal data by each entity be lawful, based on
the limited justifications legally available?
If processing has previously been justified by obtaining consents from
individuals, are these consents sufficient to cover additional uses of the data
following integration (for example, marketing of new affiliates’ products or
services)?
17.4. If, prior to the acquisition, express consents were considered unnecessary due
to the limited uses and disclosures of personal data, re-consider the position in
the light of any wider uses or disclosures following the integration.
38 l Baker McKenzie
Section 3
17.5. Have individuals whose personal data is processed by each entity been
provided with sufficient information (including information about any new
uses or disclosures) to ensure that the processing is lawful?
17.6. Is personal data transferred outside the European Economic Area (“EEA”) by
either entity?
•
if so, obtain revised individual consents, to include new recipients of data
outside the EEA (for example, new parent company in the US)
•
if new consents are not obtained, target entity should only transfer data
outside the EEA if transfers can be legally justified without consent (for
example, safe harbor, intercompany agreements, adequacy of protection
in recipient jurisdiction)
17.7. Update any data protection registrations with regional/national authorities.
17.8. Where consents are required or appropriate, these should be obtained or
updated to the extent personal data is going to be processed for different
purposes, by different entities and/or in different locations than the subjects of
the data might reasonably have expected, or specifically consented to, when
they first disclosed the data.
18. Third-Party Trading Model and Relationships

18.1. Review structure of current trading relationships with third parties of both
businesses:
•
identify common relationships
•
identify conflicts and inconsistencies
•
consider compliance risks, eg, under anti-bribery and corruption,
antitrust/competition law, and export controls and sanctions
18.2. Consider which are the key commercial contracts and identify potential impact
of integration on these relationships.
18.3. Decide upon trading relationship structure of combined group:
•
terminate any redundant or non-compliant third-party suppliers
•
review and update third-party contracts
18.4. Identify:
•
business name of combined group
•
transition period for branding changes
•
whether there is value in the acquired name and if it should be protected
Baker McKenzie l 39
18.5. Identify changes to:

•
invoices and other trading disclosures
•
customs applications (will generally need to be made prior to transfer,
otherwise goods may be held up at borders if paperwork is defective)
•
packaging and sales materials
19. Intercompany Trading Model

Review existing intercompany trading models and determine what should be
the future trading model. Management should be aware of how the outcomes
of the G20/OECD base erosion and profit shifting project (“BEPS”) will shape any
decisions relating to the group’s future trading model particularly in view of the
changes to the permanent establishment definition which will mean that certain
operating structures (eg, commissionaire) may not be sustainable going forward.
19.1. Review intercompany agreements and identify renewal or termination
requirements. Consider notice periods and any termination compensation
required under local law.
19.2. Prepare or update intercompany agreements implementing the chosen trading
model.
19.3. Identify and plan the implementation of operational changes, for example:
•
accounting
•
VAT transactions
•
customs and exports
•
sales documentation, including order forms, invoicing, etc.
20. Real Estate

20.1. Evaluate the need for local real estate and leased office, manufacturing,
warehouse and other space.
20.2. Will the integration result in physical integration of operations and relocation
of employees?
20.3. If so, review local leases to determine which leases will need to be terminated
and identify:
•
timing of the termination
•
notice requirements for termination
•
costs of termination
40 l Baker McKenzie
Section 3
20.4. Plan ahead for physical moves of people, offices, equipment, etc.
20.5. Review leases of all local entities to identify landlord consent requirements
triggered by integration (for example, assignment of lease, change of control).
21. Communications
21.1. Identify persons, including employees, third parties, local and tax authorities,
etc. who will need to receive a communication in respect of the project.
21.2. Prepare internal communication plan.
21.3. Prepare external communication plan and template materials for works
councils and other employee bodies, suppliers, customers or other third-party
communications.
21.4. Establish communication protocol for the project including whether
communication forums are to be established, eg, regular meetings and other
communication tools.
C. Implementation of the Integration
22. Pre-Integration Share Transfers

22.1. If share transfers are necessary to achieve the desired integration structure,
how will the shares be transferred?
•
for cash/debt?
•
contribution?
•
distribution or dividend?
•
how will the purchase price or transfer value be determined (for example,
market valuation, book or carrying value)?
22.2. What documentation is necessary to effect any share transfers? For example:
•
share transfer forms
•
notarial deeds
•
endorsements of original share certificates
•
amendments of articles or other constitutional documents
•
registrations with the commercial registry
•
notices to the transferring company from the transferor/transferee
Baker McKenzie l 41
22.3. If shares are represented by share certificates:

•
where are the share certificates located?
•
must the share certificates be endorsed or new share certificates issued?
•
is a power of attorney needed?
22.4. Consider corporate law requirements applicable to:
•
transferor
•
transferee
•
target
in relation to:
•
statutory and fiduciary duties of directors
•
unlawful returns of capital to shareholders
•
financial assistance for the acquisition of shares
•
corporate benefit
22.5. Consider tax implications of share transfers:
•
for transferor
•
for transferee
•
for target
from a global perspective, eg, taking into account tax implications that may
be triggered, for example, under any applicable “controlled foreign company”
legislation.
22.6. Consider accounting treatment of share transfer transactions in:
•
management accounts
•
local statutory accounts
23. Corporate Approvals

23.1. What corporate approvals are necessary to effect the integration? For example:
•
shareholders’ approval
•
board approval
•
management or supervisory board approval
•
audit committee resolutions
42 l Baker McKenzie
Section 3
23.2. If the articles of association, by-laws or other constitutional documents restrict
the integration method, can corporate approvals be simplified by effecting an
amendment?
24. Dissolutions
24.1. List dormant, non-trading or otherwise surplus entities.
24.2. Identify any reasons to retain and not to dissolve dormant, non-trading or
surplus entities.
24.3. Prepare dissolution timetables for surplus entities.
24.4. Identify compliance and audit requirements for period until dissolution.
Baker McKenzie l 43
Exhibit A
Consolidation of Companies — Merger or
Business Transfer
Initial Information Request
The following information is required to analyze the commercial and tax issues
involved in consolidating local subsidiaries and to advise on how best to structure
the commercial relationships with the local companies after the consolidations.
1. General Corporate and Legal Information

The purpose of collecting this information is to ensure that the documentation
necessary to achieve all of the corporate reorganizations can be completed
accurately, efficiently, and in accordance with each company’s organizational
documents.
1.1. Organizational chart.
1.2. Corporate name, address, purpose, business activity, and date and place of
incorporation.
1.3. Corporate documentation (for example, articles of incorporation, by-laws, share
register, share certificates, resolutions of shareholders and directors).
1.4. Current corporate officers and directors, including their present location and
employer.
1.5. Details of all intellectual property rights owned.
1.6. Details of any third-party licenses or development agreements.
1.7. Commercial agreements: sales agreements, distribution agreements, customer
support agreements, non-disclosure agreements.
1.8. Leases: real estate leases, personal property leases, including information
regarding leases to be terminated.
1.9. Loan agreements and financing documents.
1.10. Licenses, court decrees, or other legal restrictions which affect flexibility of
reorganization.
1.11. List of each shareholder or quotaholder, number of shares/quotas held by
such shareholders or quotaholders, and whether nominee or other minority
shareholders exist.
44 l Baker McKenzie
Section 3
1.12. If nominee shareholders exist, copies of nominee or trust agreements.

1.13. Copies of other agreements, if any, relating to the shares of the company (for
example, option agreements, shareholders’ agreements, pledge agreements,
etc.).
1.14. Confirmation whether the company is party to any dispute or legal proceeding
and whether there are any pending claims against the company.
1.15. List of any outstanding liabilities that have not been discharged in full,
including any guarantees and indemnities.
1.16. Confirmation whether the company has any foreign or domestic branches,
representative offices or other separate business registrations.
1.17. Service provider currently responsible for company records and corporate
maintenance.
2. Tax Information
A. General Information
2.1. Most recent tax return for both disappearing and surviving entity.
2.2. Taxable year (for example, calendar year, 30 June, etc.) for parent and all local
entities.
2.3. Financial statement tax reserve work papers.
2.4. Status of any tax audits.
B. Information Relating to Preservation of Tax Attributes
A significant key aim of the consolidation planning will be to ensure that any
valuable tax attributes are preserved, eg, NOLs and tax credits. The following
information principally relates to the disappearing and surviving foreign entities, but
paragraph 2.10 should also be addressed for the parent country entities.
2.5. Local NOLs.
2.6. Local tax credits (including VAT).
2.7. Other tax attributes: tax holidays, incentives, grants, rulings, etc.
2.8. Expected taxable income/loss in current year.
2.9. For any entity that is insolvent on a book basis, confirmation on whether
assets have value in excess of book value.
2.10. Expected restructuring charges (for example, employee termination costs, lease
termination costs).
Baker McKenzie l 45
C. Pre-consolidation Dividend Planning

The purpose of requesting/reviewing this information is to determine whether
dividends should be declared prior to the consolidation. If one of two entities has a
materially higher effective foreign tax rate, a dividend distributed immediately prior
to the local legal entity merger may bring relatively more foreign tax credits to the
parent company’s return than a dividend declared immediately after the merger. An
analysis of deferred revenue and expenses is necessary here in order to determine
whether any deferred revenue, for example, should be accelerated in order to
increase the effective pool of taxed earnings to be distributed.
2.11. Tax earnings and profits (including deficits) of each entity.
2.12. Effective tax rate.
2.13. Where US parent, section 902 foreign tax credit pools.
2.14. Where US parent, expected section 904 limitation of the parent for the current
year and the amount of excess (if any) in potential carryback years.
2.15. Deferred revenue and expenses, including mismatches between parent
company and local tax accounting treatment.
D. Coordination with Acquisition
Example: some transactional routes to combine foreign entities require the
liquidation of the target parent company, which could be inconsistent with the basis
on which the original acquisition was tax free, for example, if the acquisition of a US
target parent company were a section 368(a)(2)(E) merger.
2.16. Tax analysis of acquisition transaction.
2.17. Any representations made to selling shareholders as to continued existence of
target parent.
E. Operational Information
The purpose of this information is to develop a strategy for establishing the
commercial relationships among the entities after the reorganization.
2.18. Description of current commercial functions (for example, distributor vs.
agent).
2.19. Intercompany agreements and nature of intercompany transactions.
2.20. Intercompany transfer pricing studies.
2.21. Intercompany debt.
46 l Baker McKenzie
Section 3
3. Financial Information
3.1. Financial statements for the prior fiscal year and current year to date.
3.2. Revenues, assets, market shares for anti-monopoly or regulatory notification
requirements.
3.3. Details of any security interests over assets.
4. Human Resources Information

This information is necessary in order to analyze the employment law implications
of the consolidation. This information is also necessary to determine whether works
council or other employee representative group participation will be necessary
to achieve the reorganization or whether a works council or other employee
representative group will be required in the future due to the increased size of the
local entity after the consolidation. Details of the employee benefits programs
should be analyzed in order to integrate the various benefit plans.
4.1. Employee headcount.
4.2. Employee benefits programs including pensions and funding status.
4.3. Stock option/employee stock purchase plan participation by employees.
4.4. Existence of works councils or other employee representative groups.
4.5. Collective bargaining agreements.
4.6. Standard employment agreements, employee offer letters and employee
policies.
4.7. Employee invention and non-disclosure agreements.
4.8. Projected redundancies or terminations due to reorganization or already
planned.
4.9. Details of expatriate employees and employee work permits, visas or similar
immigration status that may be affected by a change in employer.
4.10. Any employees providing services to an entity other than their employer.
4.11. Details of any third-party arrangements which may be impacted, for example,
if any outsourced services may be terminated and, if so, what liabilities may be
triggered under local law or the commercial agreement.
Baker McKenzie l 47
5. Information Relating to Surviving Entity

The purpose of this set of information requests is to determine whether there are
corporate preferences, other than tax and commercial aspects, which will determine
the ultimate corporate structure and surviving entity.
5.1. Any preference as to which entity should survive.
5.2. Any preference as to the type of consolidation that should be used (for
example, merger or amalgamation or asset transfer followed by liquidation).
5.3. Corporate officers and directors of the surviving entity.
5.4. Description of proposed commercial functions of surviving entity (for example,
distributor vs. commissionaire).
5.5. Whether target parent legal entity will be liquidated.
5.6. Any preferences as to which entity is the holding company for the local
subsidiaries taking into account commercial, legal and tax considerations.
48 l Baker McKenzie
Section 3
Exhibit B
Branch, Representative Office or Liaison
Office — Asset or Business Transfer
Initial Information Request
The following information is required to analyze the corporate, commercial and tax
issues involved in transferring branch or representative office assets to a related
company or branch. For simplicity, representative offices and branches are both
referred to as branches below.
1. General Corporate and Legal Information

The purpose of collecting this information is to ensure that the documentation
necessary to achieve the transfer can be completed accurately, efficiently, and in
accordance with each entity’s existing organizational documents.
1.1. Corporate and branch name, registered address, purpose, business activity, and
date and place of incorporation/official establishment of the corporation and
its branch.
1.2. Corporate documentation (for example, articles of incorporation, by-laws,
resolutions of shareholders and directors) of the corporation which has
established the branch (the “Company”).
1.3. Branch documentation (for example, copy of the registration certificate or
commercial extract evidencing the official registration of the branch) in respect
of all registered branch offices in the jurisdiction.
1.4. Current Company directors (and officers, if applicable), including their present
location and employer.
1.5. Current branch managers or other legal representative(s).
1.6. Details of all intellectual property rights owned by the branch that are to be
transferred, including any third-party licenses and development agreements.
1.7. Commercial agreements: sales agreements, distribution agreements, customer
support agreements, non-disclosure agreements to be transferred or assigned.
Note that agreements not being transferred or assigned should also be
reviewed to make sure that they do not contain terms that are triggered by
the proposed branch asset disposition.
1.8. Leases: real estate leases, personal property leases, including information
Baker McKenzie l 49
regarding leases to be terminated.

1.9. Loan agreements and financing documents entered into by the Company and
branch, or entered into by affiliates that may be secured by Company/branch
assets or that contain terms triggered by a Company/branch asset disposition.
1.10. Licenses, permits, court decrees, or other legal restrictions or privileges which
affect the flexibility of the asset disposition.
1.11. Confirmation whether the Company or branch is party to any dispute, legal
proceeding or application process, and whether there are any pending claims or
causes of action.
1.12. List of any outstanding branch liabilities that have not been discharged in full,
including any guarantees and indemnities.
1.13. List any intercompany arrangements that may be affected by the asset
transfer (for example, arrangements to provide general and administrative
services to the branch by the head office or a parent company).
1.14. Confirmation whether the Company has any other foreign or domestic
branches, representative offices or other separate business registrations.
1.15. Location(s) of, and person(s) presently responsible for, Company and branch
records.
2. Tax Information
A. General Information
2.1. Most recent tax returns for relevant subsidiaries and their branches.
2.2. Accounting period for tax purposes for parent and all local entities.
2.3. Branch financial statements and asset lists.
2.4. Financial statement tax reserve work papers.
2.5. Status of any tax audits in parent jurisdiction or overseas.
2.6. Tax earnings and profits of relevant subsidiaries.
2.7. Existence of NOLs of foreign branches of parent company.
B. Operational Information
The purpose of this information is to develop a strategy for establishing the
commercial relationships among the entities after the reorganization.
2.8. Description of current commercial functions (for example, marketing agent)
and any limits or restrictions on the nature or scope of the local activities.
50 l Baker McKenzie
Section 3
2.9. Intercompany agreements and nature of intercompany transactions.

2.10. Intercompany transfer pricing studies.
2.11. Intercompany debt.
C. Information Relating to Preservation of Tax Attributes
2.12. Please refer to section 22 of Exhibit A above.
D. Pre-transaction Dividend Planning
2.13. Please refer to section 20 of Exhibit A above.
3. Financial Information
3.1. Branch financial statements for the prior fiscal year and current year to date.
4. Human Resources Information

This information is necessary in order to analyze the employment law implications of
the asset sale. This information is also necessary to determine whether works council
or other employee representative group participation will be necessary to achieve
the reorganization, or whether a works council or other employee representative
group will be required in the future due to the increased workforce after the asset
sale. Details of the employee benefits programs should be analyzed in order to
determine how they will be transferred or assigned.
4.1. Employee headcount.
4.2. Employee benefits programs including pensions and funding status.
4.3. Stock option/employee stock purchase plan participation by employees.
4.4. Existence of works councils or other employee representative groups.
4.5. Collective bargaining agreements.
4.6. Standard employment agreements, employee offer letters and employee
policies.
4.7. Employee invention and non-disclosure agreements.
4.8. Projected redundancies or terminations due to reorganization or already planned.
4.9. Details of expatriate employees and employee work permits, visas or similar
immigration status that may be affected by a change in employer.
4.10. Any employees providing services to an entity other than their employer.
4.11. Details of any third-party arrangements which may be impacted, for example,
if any outsourced services may be terminated and, if so, what liabilities may be
triggered under local law or commercial agreement.
Baker McKenzie l 51
Section 4
Antitrust/Competition Considerations in the
Pre-Merger Integration Phase
1 Suspension Period Between Signing and Completion

Global acquisitions necessitating post-acquisition integration are often subject to
merger control approvals which typically prohibit the deal from closing until the
notified regulator has approved the deal.
The purchaser is usually keen to commence the integration planning process as
soon as an acquisition agreement is signed in order to achieve the earliest possible
business integration.
However, it is essential that the parties to transactions that are subject to a
suspension period under merger control rules comply with “gun jumping” rules
during the period between signing and completion. “Gun jumping” issues are
applicable to all transactions which are subject to a merger control suspension
period, irrespective of whether the parties are competitors or not.
If the parties to the transaction are competitors, they should put in place guidelines
on exchange of competitively sensitive information during the integration planning
process between signing and closing. This is the case irrespective of whether the
transaction is subject to a merger control suspension period or not.
1.1 “Gun Jumping” Issues

In cases where a pre-merger filing is required, the parties may not close their
transaction until the end or expiration of the merger control review or waiting
period. Parties who “jump the gun” and begin to consolidate operations may be
subject to significant financial penalties.
Competition authorities worldwide are increasingly pursuing procedural violations
of the merger control rules. The US antitrust authorities, in particular, have fined
companies numerous times for engaging in unlawful activities prior to the expiration
of the waiting period under the Hart-Scott-Rodino Act.
A similar pattern is developing in Europe. In 2014, the European Commission fined
Marine Harvest EUR 20 million for acquiring control of Morpol without prior merger
clearance. In 2016, the French competition authority fined Altice Group EUR 80
million for coordinating its commercial behavior with French telecoms provider SFR
prior to obtaining merger control clearance. Regulators have been known to conduct
unannounced inspections of company premises to check for unlawful integration.
52 l Baker McKenzie
Section 4
Antitrust/Competition Considerations in the Pre-Merger Integration Phase
Although the parties are entitled to start planning integration during the merger
control suspension period, this must fall short of de facto implementation of the
transaction. The parties must therefore avoid integrating their businesses until after
merger clearance is obtained, even if the transaction is unlikely to raise any antitrust
concerns. For example, there should be no transfer of assets or implementation of
any company name change. Furthermore, the parties should not take any steps which
amount to the buyer acquiring control over the target, such as acquiring legal title in
shares with sufficient voting rights for it to have decisive influence over the target.
In addition, the buyer should not seek to influence the target’s commercial decisions,
including, but not limited to, pricing policies, new product launches, marketing plans,
and customer/supplier relationships.
In many cases, questions will arise on a wide variety of fact scenarios as to
whether a contemplated act is just “planning” or whether it could be construed by
a competition authority as the taking of control/implementation. Companies can
prepare themselves by putting in place pragmatic guidance on what sorts of steps
may be taken. When tailored to the characteristics of the deal, these guidelines can
ensure that (perceived) antitrust/competition issues are dealt with swiftly and do not
unduly delay the integration planning process.
Effective gun jumping guidelines can empower employees to proceed without fear
of violating the rules by covering the following areas:
•
assets: what can be done to plan the combination of assets (as well as protect
asset value in the interim)
•
products and services: what can and cannot be done in relation to joint
business plans; branding/product lines
•
customers and suppliers: what can be communicated to customers and how it
should be said
• ersonnel: what planning can take place in relation to employees’ salaries and
p
pensions
•
systems (IT, finance, etc.): data is a key asset but what kind of systems
integration planning is permitted
1.2 Guidelines on Exchange of Competitively Sensitive Information

The integration process will invariably involve the transfer (whether orally,
electronically or in written format) of information between the parties to the
transaction. Where the parties are actual or potential competitors it is always
important to ensure that such information transfers comply with applicable
competition laws. Prior to the closing of the transaction, the parties are still
independent companies subject to all the antitrust prohibitions against collusion.
Baker McKenzie l 53
As such, whenever the parties are actual or potential competitors on any market or
in respect of any commercial activity, the parties should ensure that information
exchange guidelines are in place which reflect the following principles:
•
What? Only exchange the minimum necessary to allow the parties to plan for
integration and satisfy regulatory filings/requirements.
• ho? Limit disclosure to those individuals that have a genuine need to know.
W
Recipients should not include employees responsible for the day-to-day
running (or oversight) of the overlapping business.
•
For what? Ensure recipients do not use the information for any other purpose
(in particular, information should not influence the recipient’s ongoing
commercial decision making). The recipient should also be obliged to return
or destroy documents if the transaction is not implemented, which should be
covered by a confidentiality agreement in force between the parties.
To minimize the risk of liability claims under the competition rules, the parties should
not provide any “competitively sensitive” information unless prior and specific
clearance has been received from the parties’ legal counsel. Competitively sensitive
information would typically cover all information you would, in the ordinary course,
want to keep from your competitors including, but not limited to, information
concerning:
•
current or future commercial or marketing strategies
•
current or prospective pricing, unless pricing information is publicly available
•
current individual employee salary or benefits information
•
customer lists
•
any other information that could influence commercial dealings or competition
between the parties
If it is important to exchange competitively sensitive information, it will usually
be necessary either to use an independent third party to review the sensitive
information and provide the other party with a non-confidential summary of it
(eg, by aggregating data or redacting certain parts), or to establish a “clean team”
which may aggregate or redact the data. Any such information exchange should be
monitored and cleared by the parties’ antitrust counsel.
Some information may be freely exchanged between the parties, ie, without prior
aggregation or redaction by a third party or by a clean team, such as:
•
publicly available information
•
general information regarding current products and services
54 l Baker McKenzie
Section 4
Antitrust/Competition Considerations in the Pre-Merger Integration Phase
•
general information regarding existing joint ventures or other relationships
with third parties
•
information relating to the integration of the parties’ IT systems
•
facility descriptions (but no costs/cost-related data)
•
environmental information of a non-competitively sensitive nature
•
announced capital expansion/closure plans
•
employee information (but not detailed cost/salary information)
•
corporate structure and shareholding investments
•
historic (generally more than one year old — though this may need to be older,
depending on market conditions) regional sales by volume and product type
Baker McKenzie l 55
Section 5
Tax Considerations
1 Introduction
When planning a post-acquisition integration project it is imperative that
management and advisers consider the tax issues at an early stage.
Management’s key objectives from a tax perspective are likely to be to: (i) take
advantage of any tax planning opportunities that arise from the integration; (ii)
preserve the group’s existing tax attributes; and (iii) minimize any tax leakage arising
from the integration (both in terms of its implementation and in the future under
the new consolidated structure). Each of these factors is considered in more detail
below.
2 Tax Optimization
Management and advisers should consider at an early stage how tax planning goals
will be balanced with business factors and any legal complexities when developing a
plan for the structuring of the integration.
Many factors influence the tax structuring options available when planning an
integration, for example: the existing tax attributes of the companies; tax planning
already undertaken; the future strategic plans for the new group including the
alignment of operating models; anticipated changes in the local and global tax
environment; the tax audit profile of the companies; as well as any planned
flotations, spin-offs or further acquisitions.
In some situations, management may wish to actively take advantage of tax
planning opportunities the integration may create in order to enhance the after-
tax cash flow. It may, for example, be the intention of management to reorganize
the shareholding structure of the group to allow for tax efficient repatriation of
earnings in foreign subsidiaries to the parent company, to create a global group
cash management function. Another driver might be to minimize the group’s global
effective tax rate, which could be achieved by, for example, seeking to convert and
allocate the purchase consideration to tax amortizable asset capitalization or funding
the local consolidations by financing the local entities to the extent possible with
interest bearing debt.
Intellectual property further represents an important and valuable asset for many
groups. Where such assets are owned by entities in high-tax jurisdictions, this can
have a significant effect on the group’s overall effective tax rate. Post-acquisition
integration often provides a good platform for a reconsideration and rationalization
56 l Baker McKenzie
Section 5
Tax Considerations
of a group’s IP holding structure, which in turn can create material tax efficiencies.
Even where IP migration is not an option, it is sometimes possible to structure
a merger or business transfer in a way that gives rise to goodwill that can be
amortized for tax purposes by the acquiring entity.
Post-acquisition integration also often provides an opportunity to assess the most
tax efficient holding company structure for the combined group and to rationalize
or make more tax efficient the group’s financing structure. For example, a company
may assign an intercompany receivable as consideration for the purchase of an asset
and/or shares, or may sell assets and/or shares across the group in exchange for debt,
as discussed below. In all cases, it will be important to assess whether any interest
expense would be deductible for tax purposes in light of the specific tax rules in
the relevant jurisdiction that may otherwise restrict the company’s ability to claim a
deduction for interest expenses (eg, thin capitalization rules). Groups should also be
acutely aware of how BEPS will shape the group’s financing structure going forward.
In particular, the BEPS recommendation that countries introduce a fixed ratio rule
to limit an entity’s net interest deductions to a fixed percentage of its EBITDA, and
clamp down on hybrid mismatch arrangements employed by multinational groups
to, for example, exploit differences in the tax treatment of debt under the laws of
relevant jurisdictions to broadly achieve double non-taxation/an interest expense
deduction with no corresponding taxable interest income, is likely to be a key
concern.
Finally, it is important to consider the extent to which any future operational plans
for the group could impact the structure of the integration and any tax planning
opportunities, eg, any drivers to change/align the supply chain and operating
structure of the combined group moving forwards. For example, any such changes
to an entity’s operating model could impact the availability of future tax attributes,
whether coupled with the consolidation or on a standalone basis. Any planning to
otherwise preserve such tax attributes in connection with the integration that would
nonetheless be forfeited at a later stage would be a wasted exercise.
3 Preserving Tax Attributes

In many cases, either one or both local subsidiaries may have valuable tax attributes,
such as accumulated tax losses (NOLs). Preserving these tax attributes is likely to be
an important goal of any integration project. However, it will always be important
to weigh the value of tax attributes (taking into account projected profitability
of the integrated business and loss expiry rules) against the business costs of
preserving the losses. In some jurisdictions, for example, a business lease between
the two operating subsidiaries may have advantages over a merger from an NOL
preservation perspective, but the lease can be a more difficult structure to manage
from an accounting and business perspective. The structure that is chosen will also
depend on the relative value of preserving tax attributes as against the cost of
implementing and maintaining a more cumbersome integration structure.
Baker McKenzie l 57
Where preservation of tax attributes is an important objective of the integration

structure, particular care must be taken to navigate local tax laws which, invariably,
will contain anti-avoidance legislation which can limit the transfer of the existing
NOLs from one group company to another or restrict their use within a group of
companies. In the context of a post-acquisition integration project, the operation
of these rules must be examined at each step of the integration plan, particularly in
light of the concerns outlined in the following paragraphs.
The original acquisition of the target group by the acquiring group may mean that
the existing NOLs have already been lost, are restricted in some way, or cannot be
used against profits of the acquiring or a surviving company in the same jurisdiction.
In the UK, for example, NOLs are forfeited where there is a change in the ultimate
shareholder of a UK company combined with a major change in the nature or
conduct of the trade of the company within three years of the acquisition. It is
important to assess at the outset whether any such restrictions could apply, as any
planning to preserve NOLs that are no longer available would be a fruitless exercise.
Management should be able to leverage any tax due diligence performed on the
acquisition to assist them in determining whether any such rules apply.
In some jurisdictions share pre-positioning steps can have an impact on tax
attributes. In Germany, for example, the transfer of a direct or indirect interest in
a German company can (absent a specific relief or exemption) result in the carry
forward of NOLs being restricted, or even prohibited. This means that share transfers
a long way up the ownership chain that do not involve any German companies
directly can impact the preservation of tax attributes in the German companies.
In many jurisdictions the manner in which the consolidation (eg, asset transfer versus
merger) is executed could have an impact on whether the NOLs survive. For instance,
in several jurisdictions, the NOLs of the acquiring subsidiary are preserved, but the
NOLs of the transferring company are restricted. These rules could ultimately drive
which entity in the structure is chosen to be the acquirer or survivor (in other words,
these rules would suggest that the entity with the most valuable NOLs should be
the survivor).
In some jurisdictions, the manner in which the operations are consolidated (ie, asset
transfer versus merger) may have an impact on the tax attributes that are available
going forward.
One final point to note in this area is that it is often possible to obtain a binding
advance ruling from the relevant tax authority confirming that NOLs will be
unaffected by the integration steps (or, where relevant, can be utilized by the
integrated entity). Indeed, in some jurisdictions and circumstances, obtaining a pre-
transaction ruling is a prerequisite for NOLs to survive the integration.
The treatment of NOLs in various jurisdictions is summarized at the end of this
section.
58 l Baker McKenzie
Section 5
Tax Considerations
4 Minimizing the Actual Tax Cost of Integration

For planning purposes, it is normally straightforward to assess the indicative tax
costs involved and tax savings to be made in achieving the business objectives of
the integration. Tax costs (or tax planning savings) are treated like any other business
cost (or benefit) and form part of the cost/benefit analysis that management
undertakes when formulating the integration plans. An unexpected tax cost arising
on an integration can be a bitter pill to swallow and emphasizes the need for careful
and detailed planning, not only at a local level, but also with a view to the global
picture.
One difficulty usually experienced by management not only during the early stage
of an integration project but also as the project moves towards implementation, is
quantifying the actual tax costs and benefits. It may not be until the fine details of
the integration plans are settled that tax issues and costs can be accurately assessed.
In particular, the need for fair market valuations of the relevant entities should be
factored into the planning at an early stage given that the tax costs in a number of
instances are likely to be determined by reference to fair market values.
It is also critical that the tax costs are assessed for each step of the end-to-end
integration plan, both from a local and global perspective, and in light of the wider
integration plan as a whole. For example, the indirect transfer of shares as part of a
consolidation plan in another territory could trigger indirect transfer taxes and this
cost should be captured at the planning stage.
4.1 Creating the New Group

As explained in more detail in paragraph 2.9 of Section 2, there are a number of
advantages to reorganizing the acquiring and target companies into a parent/
subsidiary or brother/sister subsidiary relationship (ie, under a direct common parent)
prior to an integration. This could be achieved in one of the following ways:
•
the acquiring company contributing its foreign subsidiaries downstream to the
target company
•
the target company distributing its subsidiaries upstream to the acquiring
company (or very often a combination of upstream and downstream
distribution and contribution steps)
•
the shares of the subsidiaries being sold within the group
•
one of the acquirer group’s holding companies effecting a cross-border merger
into one of the target group’s holding companies (or vice versa)
Baker McKenzie l 59
4.1.1 Downstream Contributions

The immediate tax consequences of downstream contributions must be considered
at three levels. The first level is the tax treatment in the home jurisdiction of the
company making the contribution. In many jurisdictions, including traditional holding
company jurisdictions such as Luxembourg and the Netherlands, participation
exemptions should allow such contributions to be made tax free. In other
jurisdictions the contribution may have to be structured as a tax-free reorganization
either because the jurisdiction does not have a participation exemption or the
participation exemption does not apply, where, for example, a qualifying holding
period has not been satisfied — which can often be the case in post-acquisition
integration projects. Such a tax-free reorganization would usually involve the issue
of shares by the company which is receiving the contribution.
The second level to consider is the tax treatment for the company receiving the
contribution, ie, is the receipt of the contribution a taxable event? For example,
a contribution to a Japanese company without the issue of shares gives rise to a
taxable receipt for the Japanese company equal to the fair market value of the
shares contributed. In other jurisdictions, for example Switzerland, the contribution
may be subject to capital duty.
The third level to be considered is the tax treatment in the jurisdiction of
incorporation of the company being contributed and whether the transfer of legal
ownership in the contributed company is subject to local transfer taxes or other
transfer costs, including real estate transfer taxes, notarial fees and/or registration
fees. For example, the transfer of a company incorporated in New South Wales,
Australia is subject to a 0.6% stamp duty, but relief is granted where the transferor
and transferee company have been associated for at least 12 months prior to the
transfer. However, some jurisdictions (for example, Germany) have extremely limited
exemptions. In these jurisdictions, it is often necessary to consider bespoke transfer
tax mitigation structures to limit the incidence of real estate transfer tax.
Another issue to consider is whether the jurisdiction seeks to levy tax on a non-
resident shareholder disposing of shares in a company incorporated in that
jurisdiction. The taxing rights of the local jurisdiction may be limited under double
tax treaties entered into with the jurisdiction in which the company making the
contribution is resident, but this is not always the case. For example, Mexico
taxes non-resident shareholders disposing of shares in Mexican companies, and
the Mexico-Germany tax treaty allows the Mexican tax authorities to tax gains
arising on a disposal of Mexican shares by a German company. Subject to limited
exemptions, China, similarly, taxes non-resident shareholders on the disposal of
shares in Chinese companies.
60 l Baker McKenzie
Section 5
Tax Considerations
4.1.2 Upstream Distributions

It is usually easier from a corporate law perspective to contribute shares in
companies downstream. However, for a variety of other reasons, it may be preferable
to distribute shares in companies upstream. An upstream distribution can usually
be achieved either by declaring a dividend out of distributable reserves or, in some
jurisdictions, by effecting a capital reduction process (the latter usually being a
more cumbersome, time-consuming and costly procedure). Again, tax effects may
be seen at three levels. Firstly, is the distribution taxable in the jurisdiction of the
company receiving the distribution? Secondly, at the level of the company making
the distribution, there are two issues to consider: (i) is the distribution subject to
withholding tax; and (ii) is the distribution a taxable disposal of the shares? This
second issue can be difficult as many countries, such as the United States, have
complex requirements which must be satisfied for an upstream distribution to be tax
free. At the third level, the tax consequences in the jurisdiction of incorporation of
the company being distributed must be considered.
4.1.3 Sale of Shares Within the Group

The third option is to sell the shares of the relevant company directly to another
company, which can immediately achieve the relevant parent/subsidiary or
brother/sister relationship. This method is sometimes the simplest, especially
where a complicated group structure means distributions and/or contributions are
impractical.
The tax issues discussed above are again relevant. In addition, it is important to
consider the tax effect of subsequently extracting any debt/cash consideration from
the transferor entity, eg, by way of dividend, both in terms of any withholding tax
liability and whether the distribution is taxable in the hands of the recipient.
The sale method can also have other beneficial tax and non-tax effects, which can
include cash repatriation and inserting interest-bearing debt into the relevant local
entities.
A company in a particular jurisdiction may be cash rich. This situation may have
arisen because current cash-generating operations are being used to reduce an
earnings deficit on its balance sheet; the parent company has decided not to
repatriate cash using dividends because it would become trapped in an intermediate
subsidiary that has an earnings deficit (a so-called “dividend blocker”); or it is not
tax efficient to distribute profits, either because of the effect of non-creditable
withholding taxes or high tax charges in the home jurisdiction of the parent or any
intermediate company.
It may also be tax efficient or commercially desirable to transfer the shares of the
local entity for interest-bearing debt. The interest expense could then be available
to shelter taxable income in the relevant jurisdiction. In these circumstances, it
Baker McKenzie l 61
is important to examine whether local law will permit a deduction in respect of

interest paid in connection with a debt incurred in such a manner. Some countries
disallow the deduction in certain circumstances. For example, Singapore does not
permit deductions for debts incurred to acquire assets that produce income which is
not taxable in Singapore. This includes shares in Singaporean and foreign companies.
The sale of shares across the group also provides an opportunity to rationalize or
make more tax efficient the group’s intercompany debt position. For example, a
company may assign an intercompany receivable as consideration for the purchase
of an asset and/or shares.
5 Basic Local Integration Structures

There are two basic methods available to integrate operations in most jurisdictions:
either a statutory merger or amalgamation under local law; or the sale of business
from one subsidiary to another in the same jurisdiction with a subsequent
dissolution of the seller. A summary of these integration methods in 45 jurisdictions
is set out in Section 10.
5.1 Business Sale and Dissolution

One approach to achieve the consolidation of operations is often to sell the business
of one foreign subsidiary to another subsidiary in the same jurisdiction. The selling
company is subsequently dissolved. In some common law jurisdictions, including
the United Kingdom and Australia, either no simplified statutory merger regime
exists or if a regime exists it is, for practical reasons, not commonly used. In these
jurisdictions, a business sale and dissolution is the only available way to integrate the
businesses. The tax goal in carrying out such transactions is to minimize or eliminate
any tax charge and, if possible, to retain any valuable tax attributes of the local seller
and the local buyer. To achieve this goal it is usually necessary to have the seller
and the buyer either in a group arrangement or otherwise consolidated for local
tax purposes. In certain jurisdictions this may only be possible if one local company
directly owns the other or they are both owned by a common parent company in
the same jurisdiction. In the United Kingdom and Australia, the tax rules allow for
common ownership to be traced through foreign corporations, which can eliminate
the need to undertake any share restructuring prior to the consolidation.
When transferring capital assets from one company to another, the assets could be
treated for tax purposes as being sold for their fair market value unless the asset can
be transferred from one group company to another on a tax-neutral basis pursuant
to local tax group or consolidation rules. Management should always consider
whether they wish to take advantage of these regimes or whether a better result
can be achieved by ensuring that the rules do not apply.
62 l Baker McKenzie
Section 5
Tax Considerations
The transfer of trading stock and work in progress from one company to another
company in the same jurisdiction will normally give rise to a revenue profit. Local tax
rules may allow for such assets to be transferred at their original acquisition cost,
although consideration should always be given as to whether existing NOLs within
the selling company might be used (to set off against any profits arising from a sale
at fair market value). This also allows the buying company to achieve a step-up in its
tax base cost in these assets and is a useful technique if it is not possible to transfer
the NOLs from the local selling company to the local buying company.
The local selling company may have been depreciating its capital assets for tax and
accounting purposes. The effects of any intercompany sale upon tax depreciation
claims should be considered. In some jurisdictions, opportunities exist for pre-
acquisition tax depreciation allowances to be disclaimed and deferred to a post-
acquisition period. This can be useful to help mitigate the loss of NOLs, which can
occur as a result of the original acquisition or the post-acquisition integration. In
some situations, companies may not want NOLs or other tax attributes to transfer
as part of an asset sale to the identified surviving company, for example, a US parent
company may have been utilizing in the US the NOLs of a foreign branch. If the
foreign branch NOLs transfer to a foreign subsidiary of the US parent company as
a matter of local law, the US parent may be faced with the recapture of the US tax
savings generated as a result of using its foreign branch’s NOLs in the US.
In most jurisdictions, the sale of assets from one company to another will be subject
to value added tax (“VAT”) or a similar tax. Usually such tax charged by the selling
company to the buying company is creditable to the buying company, however,
this can give rise to a cash flow disadvantage to the group when carrying out such
transactions in a large number of jurisdictions. In many jurisdictions, and this is
certainly true for EU member countries, transfers of businesses as a going concern
are ignored for VAT purposes.
Stamp duties can further considerably add to the cost of a local asset sale.
Fortunately, relief from stamp duties is usually available in the intra-group
context, although in certain cases, the relief may need to be claimed rather than
automatically being available. Any such reliefs may dictate the manner in which the
sale takes place, for example, it may be structured as an assets-for-shares sale or the
sale may have to be delayed until a particular group relationship has been in place
for a relevant holding period.
Many jurisdictions impose transfer taxes on the transfer of real estate. As real estate
transfer taxes tend not to be deductible for tax purposes nor creditable in the
jurisdiction of a parent entity, they generally represent a true out-of-pocket cost to
the company. In practice, exemptions are often available where the real estate (or an
interest in the real estate) is transferred within an associated group of companies,
which limit the impact of real estate transfer taxes in the context of intra-group
reorganizations.
Baker McKenzie l 63
The tax cost of extracting the consideration from the selling company (eg, any
withholding taxes on a subsequent distribution, tax treatment of the distribution in
the hands of the recipient) should also be considered. In particular, it is important to
assess whether a pre-sale distribution or liquidation distribution would give rise to a
better tax result from both the seller and shareholder perspectives.
The tax treatment on a global level should always be considered, eg, whether the
particular transaction could create a taxable exposure higher up the chain, notably
whether any of the holding companies operate a “controlled foreign company”
regime which would seek to tax the income or gain realized on the consolidation.
5.2 Local Statutory Merger

When available, the recommended approach is often to use a statutory merger under
local law. Such a transaction will typically (though not always) be tax free from a
local tax perspective, although post merger conditions may also apply (eg, holding
periods). Depending on the jurisdiction, the tax attributes of the target or absorbed
company may or may not be available to the consolidated entity. In particular, in a
number of jurisdictions the future availability of the NOLs of the absorbed company
will be restricted or lost entirely.
Real estate transfer taxes are still chargeable on mergers in many jurisdictions, and
these costs may dictate that the company with no real estate or the least valuable
real estate is the disappearing company in a merger.
The tax treatment on a global level should always be considered, as in the case
of a business transfer. Furthermore, when two local companies merge while in a
brother/sister relationship, or a local parent company merges downstream into
its local subsidiary, any foreign shareholder is likely to be treated as disposing of
its shares in the disappearing company for foreign tax purposes. It may be that
there is no foreign tax charge because of a relevant participation exemption, the
application of the EU Merger Directive, foreign tax laws classifying the merger as
a tax-free reorganization, the utilization of existing NOLs by the foreign company,
or simply because the foreign shareholder has a base cost in the disappearing local
entity equal to its market value as a result of the prior transfer to it of the shares
in the disappearing company as part of the integration planning. This is likely to
be relevant where the participation exemption has a minimum holding period that
would not otherwise be satisfied at the time of the merger. In that case, it would be
important to implement the merger as soon as possible following the share transfer
in order to mitigate the risk that the fair market value of the shares may increase
at the time of the merger. This may not, however, mitigate the risk of any potential
FX exposure and so, in certain instances, it may be appropriate to wait until the
minimum holding period has been satisfied before the merger is effected.
64 l Baker McKenzie
Section 5
Tax Considerations
In many jurisdictions, the parties may meet a merger to have a retroactive effective
date for tax or accounting purposes. A retroactive effective date can allow for earlier
consolidation and utilization of favorable tax attributes, such as NOLs.
The desirability of utilizing merger regimes from a tax perspective must be weighed
against operational objectives, which can sometimes be frustrated by the merger
process. Merger regimes often require the preparation and filing of recent balance
sheets or full accounts of at least the absorbed company and in many cases these
accounts will need to be audited. The time required to prepare such accounts,
combined with mandatory waiting periods to protect creditors after a public
notification has been made, can frustrate the operational need to combine the local
business of the target company with that of the acquirer quickly, so that business
efficiencies and management control are achieved.
Finally, the EU cross-border merger process can be used to simplify corporate
structures in the EU and economize on compliance costs. In this scenario, a company
in one EU Member State can be merged cross-border into a company incorporated
in another EU Member State, leaving behind a branch (for tax purposes a permanent
establishment) with the assets and liabilities of, and the business formerly conducted
by, the merged entity. In most cases such mergers can be effected without realizing
taxable income, although other tax attributes such as NOLs may not remain available
in some countries (for example, Germany), despite remaining available in others (for
example, Austria).
5.3 Alternatives to Integrations by Business Sale or Merger

Many jurisdictions have some form of group or consolidated tax regime that can be
used as an alternative to a tax-free asset sale or merger (for example, UK group relief,
French consolidation and German Organschaft). Essentially, this approach allows the
two operations to share NOLs and to obtain the benefits of consolidation from a tax
perspective, but it does not consolidate activities on a business and operational level.
Thus, this approach is not recommended where an actual consolidation is desirable
and can be completed. This method can be effective if there are limited overlapping
activities or redundancies, structural tax constraints or costs preventing operational
consolidation.
Another alternative to an actual consolidation is a lease by one company of its entire
business to the other company. This approach does allow the parties to consolidate
on an operational level. For transfer pricing purposes the lessor must earn an arm’s
length profit on the leased business.
This structure may be useful in two particular circumstances. The first situation
is where the surviving company in a jurisdiction wishes to use the assets of the
disappearing company in its business, but cannot immediately acquire them. This
may be because permits, licenses or leases cannot be assigned without consent,
Baker McKenzie l 65
or the companies are not yet in the optimum structural relationship from a tax
perspective to consummate a business sale.
In France, Germany, Austria and certain other jurisdictions, the business lease is
a method used to prevent the company which is identified as the disappearing
company prematurely being treated as disposing of its assets to the surviving
company as a result of the surviving company utilizing such assets in its business
prior to their legal transfer.
Such a deemed disposal of assets can have unfortunate tax consequences if the
companies are not in the correct relationship at the time and negate the benefit of a
subsequent tax-free merger.
The second scenario is where trading NOLs in the disappearing company will not
transfer to the surviving company. It may be possible to use these NOLs effectively
by claiming a deduction for the leasing expense in the surviving company and
offsetting the NOLs in the disappearing company against its leasing profits.
6 Other Considerations
Tax authorities in many jurisdictions make provision for binding advance rulings
confirming the tax treatment of a transaction before its implementation. As tax
rules around the world become increasingly complex, and the financial reporting
requirements associated with the disclosure of uncertain tax positions become more
onerous, obtaining certainty as to the tax treatment of a particular transaction as
early as possible will often be hugely advantageous. On the other hand, rulings can
be costly and time consuming to prepare. Moreover, applying for rulings can lead
to audits by local tax authorities, which can impose additional burdens on internal
resources that are already stretched by the integration planning and implementation
process.
The following factors should be considered in determining whether or not to seek a
ruling:
•
Is an advance ruling necessary to achieve the intended tax result? In France,
for example, NOLs will not transfer on a merger unless a prior advance ruling is
obtained from the French tax authorities.
•
How important is obtaining certainty in advance of the transaction? Groups
that are subject to US financial reporting requirements may place a higher
premium on certainty than groups that are not.
•
Is a ruling the only way to obtain the level of certainty required? Where
the tax rules relating to a particular transaction are fairly clear, an opinion
from third-party advisers may provide sufficient comfort on any points of
uncertainty.
66 l Baker McKenzie
Section 5
Tax Considerations
•
Is the tax ruling disclosable to other tax authorities?
•
How much will the ruling cost? Tax authorities in some jurisdictions (for
example, Germany) can charge a substantial fee for providing advance tax
rulings.
•
How long will it take to obtain the ruling? Tax authorities in some jurisdictions
(for example, the United Kingdom) commit to providing a response to ruling
requests within a certain timeframe, whereas others are not obligated to
respond at all. This can lead to the ruling process holding up the timing of the
transaction as a whole.
•
How much disclosure is required? Most tax authorities require that the
taxpayer fully disclose all of the details of the transaction before they
provide a ruling. Where a new operating or transfer pricing structure is being
implemented as part of the wider integration project, the group may feel that
early disclosure may result in a less advantageous tax result (for example,
where the advance agreement will be based on potentially unreliable forecast
data).
•
Can the ruling be relied upon? Some rulings bind the tax authority and
therefore give a high degree of certainty and comfort while others are merely
a written indication of the way in which the tax authorities are likely to view
the transaction, which can be departed from on audit.
7 Conclusion
As the above discussion demonstrates, the steps for integrating duplicate entities
are similar and follow established patterns. The patterns are relatively well known
and thus planning typically focuses on the preparatory steps to the integrations.
These preparatory steps should allow the taxpayer to maximize the benefit of
the domestic and foreign tax attributes, avoid unnecessary costs such as stamp
taxes, and take advantage of one-time benefits. More importantly, this process
allows the group to structure itself in a tax efficient manner that yields benefits for
years to come. Although every integration project involves some new and unique
planning issues, this chapter should serve as a road map for approaching the process,
identifying the opportunities, and avoiding the pitfalls.
Baker McKenzie l 67
Summary of Retrospective Effect and Tax Losses

When one multinational company acquires another company and its international
subsidiaries, a key aspect of the integration of the two multinational groups is
to consolidate duplicate operating companies so that there is only one operating
company in each country. The following summary of integration methods has been
prepared on the following assumptions.
1. Each company is a 100% subsidiary of the same parent company or one is a
100% subsidiary of the other (subject to any mandatory minority shareholding
interests).
2. The surviving company of the integration will be one of the original operating
companies, not a newly incorporated company (save where indicated otherwise
below).
Alternative methods are available in many jurisdictions and this summary should not
be relied on instead of obtaining specific legal advice.
68 l Baker McKenzie
Section 5
Tax Considerations
1 Americas
ARGENTINA Merger Asset Sale
1.1 Local integration method. Merger. Asset sale.
1.2 Can merger/asset sale be The earliest the merger The earliest the asset sale
retrospectively effective can be effective is the date can be effective is the date
from tax and accounting the surviving company the buyer entity commences
perspectives? took over and commenced the activities previously
the activities previously conducted by the selling
conducted by the other entity but only if the asset
company (the Merger Date) sale is fully compliant with
but only if the merger is the requirements applicable
fully compliant with the to a tax free reorganization.
requirements applicable to a
tax-free reorganization. Otherwise, the legally
effective date of the asset
Otherwise, the legally sale is the date of its
effective date of the merger registration with the Public
is the date of its registration Registry of Commerce,
with the Public Registry of which can take some time.
Commerce, which can take
some time.
1.3 Do accumulated tax losses Yes, provided the merger Yes, provided the asset sale
of disappearing company meets all the requirements meets all the requirements
survive the merger/asset applicable to a tax-free applicable to a tax-free
sale? reorganization. reorganization.
1.4 Do accumulated tax losses Yes, provided the merger Yes, provided the asset sale
of surviving company meets all the requirements meets all the requirements
survive the merger/asset applicable to a tax-free applicable to a tax-free
sale? reorganization. reorganization.
BRAZIL Merger Asset Sale

1.2 Can merger/asset sale be No. No.
retrospectively effective
from tax and accounting
perspectives?
1.3 Do accumulated tax losses No. Yes, however, losses remain
of disappearing company with selling entity. However,
survive the merger/asset if the selling entity changes
sale? its corporate control and
changes its line of business,
it will lose the ability to
utilize any tax losses.
1.4 Do accumulated tax losses Yes, provided there is no Yes, provided there is no
of surviving company change of corporate control change of corporate control
survive the merger/asset and no change of line of and no change of line of
sale? business of the surviving business, the buyer entity
company. may continue offsetting its
own tax losses, but does not
acquire the tax losses of the
selling entity.
Baker McKenzie l 69
CANADA Amalgamation Asset Sale

1.1 Local integration method. Amalgamation. Asset sale.
perspectives?
1.3 Do accumulated tax losses There is no disappearing Yes, however, losses remain
of disappearing company or surviving entity on with selling entity until
survive the merger/asset amalgamation. Tax losses dissolution. Note that
sale? of both the amalgamating following an acquisition
corporations generally survive of control of an entity,
and may be used by the non-capital losses may only
amalgamated corporation. be used to offset gains to
Note that following an the extent that the entity
acquisition of control of an
carries on the same business
entity, non-capital losses may
following the acquisition of
only be used to offset gains
to the extent that the entity control as that which was
carries on the same business carried on when the losses
following the acquisition of were incurred.
control as that which was
carried on when the losses
were incurred.
Note: any deemed year
ends of the amalgamating
corporations resulting from
the amalgamation will count
towards the expiration of
losses.
1.4 Do accumulated tax losses There is no disappearing Yes, subject to conditions.
of surviving company or surviving entity on Note that following an
survive the merger/asset amalgamation. Tax losses acquisition of control of an
sale? of both the amalgamating entity, non-capital losses
corporations generally survive may only be used to offset
and may be used by the gains to the extent that
amalgamated corporation. the entity carries on the
Note that following an same business following the
acquisition of control of an
acquisition of control as that
entity, non-capital losses may
which was carried on when
only be used to offset gains
to the extent that the entity the losses were incurred.
carries on the same business
following the acquisition of
control as that which was
carried on when the losses
were incurred.
Note: any deemed year
ends of the amalgamating
corporations resulting from
the amalgamation will count
towards the expiration of
losses.
70 l Baker McKenzie
Section 5
Tax Considerations
Non-statutory
CHILE Merger (1) Merger (2) Asset Sale
Mergers
1.1 Local integration Merger (1): a Merger (2): one Non-statutory Asset sale.
method. new entity is of the entities merger: stock
created, both is absorbed corporation is
entities are and the other dissolved when
dissolved. survives. all its shares are
fully owned by
a single entity
for at least 10
consecutive
days.
1.2 Can merger/ Yes, from an No. No. Yes, with
asset sale be accounting but limited effects
retrospectively not from a tax depending on
effective perspective. the case (only
from tax and within the same
accounting fiscal year).
perspectives?
1.3 Do accumulated No. No. Yes. Yes, however,
tax losses of losses remain
disappearing with selling
company survive entity until its
the merger/asset dissolution.
sale?
1.4 Do accumulated No. No. No. Yes.
tax losses
of surviving
company survive
the merger/asset
sale?
Baker McKenzie l 71
COLOMBIA Merger Asset Sale

1.2 Can merger/asset sale be No. Yes.
perspectives?
1.3 Do accumulated tax losses Yes. There are two No.
of disappearing company requirements to be able to
survive the merger/asset absorb losses in a merger: (i)
sale? the companies participating
in the merger must have the
same corporate purpose; and
(ii) the absorbing company
can compensate losses of
the absorbed companies but
limited to the participation
percentage of the absorbed
companies in the equity of
the absorbing company.
The offset of these tax
losses must take into
account the limitations in
time and percentage that
were enforceable at the
time the tax losses were
generated.
1.4 Do accumulated tax losses Yes. Yes.
of surviving company
survive the merger/asset
sale?
72 l Baker McKenzie
Section 5
Tax Considerations
MEXICO Merger Asset Sale

1.1 Local integration method. Merger, where two or more Asset sale.
companies merge without
creating a new entity.
perspectives?
of disappearing company with selling entity until
survive the merger/asset dissolution.
sale?
1.4 Do accumulated tax losses Yes, to the extent they are Yes.
of surviving company used against income derived
survive the merger/asset from the same activity that
sale? generated such tax losses.
PERU Merger Asset Sale

1.2 Can merger/asset sale be No. However from a No.
retrospectively effective corporate perspective the
from tax and accounting parties may fix the legal
perspectives? effective date, which can
be the same date as the
approval of the merger
agreements. For tax
purposes, the companies
participating in the merger
need to notify the legal
effective date to the tax
authority within 10 days of
the merger.
1.3 Do accumulated tax losses No. No.
of disappearing company
sale?
1.4 Do accumulated tax losses Yes, but the tax losses will Yes.
of surviving company be limited to an amount
survive the merger/asset equivalent to the value of
sale? the assets in the surviving
company, before the merger
takes place.
Baker McKenzie l 73
UNITED STATES (DELAWARE) Merger Asset Sale

1.1 Local integration method. Merger — Delaware Asset sale.
corporations.
perspectives?
1.3 Do accumulated tax losses Yes, in certain tax-free Yes, in certain tax-free asset
of disappearing company mergers or liquidations, the acquisitions, the losses may
survive the merger/asset losses may survive and be survive and be transferred
sale? transferred to the surviving to the buyer entity, subject
company, subject to potential to potential limitations. In
limitations. a taxable transaction, the
losses generally remain with
the selling entity.
1.4 Do accumulated tax losses Yes, subject to conditions. Yes, subject to conditions.
sale?
VENEZUELA Merger Asset Sale

perspectives?
1.3 Do accumulated tax losses Yes. Losses are transferred Yes, however, losses remain
of disappearing company by operation of law to the with selling entity until
survive the merger/asset surviving entity. Because the dissolution.
sale? fiscal year of the disappearing
company will close on the
date the merger becomes
effective, and losses are
subject to a three-year carry
forward rule while inflation
adjustment losses are subject
to a one-year carry forward
rule, the short fiscal year of
the disappearing company
will count towards the
expiration of losses.
1.4 Do accumulated tax losses Yes. Yes. The buyer entity will
of surviving company be entitled to use the losses
survive the merger/asset to offset any capital gain
sale? derived from the sale.
74 l Baker McKenzie
Section 5
Tax Considerations
2 Asia Pacific Region

AUSTRALIA Merger Asset Sale
1.1 Local integration method. No merger procedure Asset sale.
is available in Australia.
Court-sanctioned scheme of
arrangement rarely used.
1.2 Can merger/asset sale be N/A. Generally no, but parties
retrospectively effective can agree that the sale be
from tax and accounting economically effective prior
perspectives? to completion (but not
before the date the sale is
agreed).
1.3 Do accumulated tax losses N/A. Yes, however, losses remain
of disappearing company with the selling entity until
sale?
1.4 Do accumulated tax losses N/A. Yes, subject to satisfying the
of surviving company “continuity of ownership” or
survive the merger/asset “same business” test.
sale?
Baker McKenzie l 75
CHINA Merger (1) Merger (2) Asset Sale

1.1 Local integration Two companies One company Asset sale.
method. combine to form a merges into another
new entity (“Merger existing company Buyer entity: can
by Consolidation”). (“Merger by be an existing
Absorption”). company or a newly
established company.
1.2 Can merger/ No. No. No.
asset sale be
retrospectively
effective from tax
and accounting
perspectives?
1.3 Do accumulated Under the normal Under the normal Yes, however,
tax losses of tax treatment, tax treatment, losses remain with
disappearing where the merger where the merger selling entity for the
company survive is subject to income is subject to income remainder of the loss
carry forward term
the merger/asset tax, the accumulated tax, the accumulated
and cannot be carried
sale? tax losses of the tax losses of the over to the buyer
disappearing disappearing entity.
company cannot be company cannot be
utilized by the post- utilized by the post-
merger company. merger company.
If a merger If a merger
qualifies for tax- qualifies for tax-
free treatment, free treatment,
the accumulated the accumulated
tax losses of the tax losses of the
disappearing disappearing
company can be company can be
carried over to carried over to
the post-merger the post-merger
company with certain company with certain
limitations. limitations.
1.4 Do accumulated tax Yes. Yes. Yes, but the
losses of surviving purchasing entity
company survive the does not acquire any
merger/asset sale? of the losses of the
selling entity.
76 l Baker McKenzie
Section 5
Tax Considerations
HONG KONG Merger Asset Sale

1.1 Local integration method. Court-free amalgamation available Asset sale.
for merging sister companies or
parent/subsidiary companies.
arrangement available for more
complex amalgamations, though
this is rarely used in practice.
perspectives?
1.3 Do accumulated tax losses Tax losses brought forward from the Tax losses are specific
of disappearing company amalgamating company can only to a company and
survive the merger/asset be set off against the profits of the cannot be transferred
sale? amalgamated company derived to other group
from the same trade or business companies.
succeeded from the amalgamating
company (same trade test).
1.4 Do accumulated tax losses Tax losses brought forward in the Tax losses are specific
of surviving company amalgamated company can be set to a company and
survive the merger/asset off against profits derived from the cannot be transferred
sale? trade or business succeeded from the to other group
amalgamating company if: companies.
• the amalgamated company has
adequate financial resources
(excluding intra-group loans) to
purchase the trade or business
of the amalgamating company
other than through amalgamation
(financial resources test)
• the amalgamated company was
carrying on a trade or business
until the amalgamation (trade
continuation test)
• such losses were incurred after the
amalgamating company and the
amalgamated company had become
wholly owned subsidiaries of the
same group (post-entry test)
If the conditions are not all met, the
tax losses can only be used to set off
against the profits derived by the
amalgamated company from its own
trade or business.
Baker McKenzie l 77
INDONESIA Merger (1) Merger (2) Asset Sale

1.1 Local integration Merger — market Merger — book Asset sale.
method. value. value.
asset sale be
retrospectively
effective from tax
and accounting
perspectives?
1.3 Do accumulated The tax regulations No. Yes, however, losses
tax losses of stipulate only that remain in the selling
disappearing the transfer of tax company until
company survive losses in a book value dissolution.
merger is prohibited;
the merger/asset
the regulations are
sale? silent on the transfer
of tax losses in a
market value merger.
In the latter situation,
it is more likely than
not that the loss
carry forward can be
transferred to the
surviving entity.
1.4 Do accumulated tax No. Yes, however, the Yes.
losses of surviving surviving entity must
company survive the be the entity that
merger/asset sale? has no or lower fiscal
and commercial losses
carried forward.
78 l Baker McKenzie
Section 5
Tax Considerations
JAPAN Merger Asset Sale

1.1 Local integration method. Merger by absorption. Asset sale (non-tax qualified
corporate split achieves the
same result).
perspectives?
1.3 Do accumulated tax losses Yes. Disappearing and No.
of disappearing company surviving companies must
survive the merger/asset undertake a “tax qualified”
sale? merger and must either (a)
have been under common
control for five years or more,
or (b) satisfy certain “deemed
joint venture tests,” which
include a “business similarity
test” and “management
continuity test,” or a “business
similarity test,” “similarity of
scale test” and “continuity of
business scale test.”
1.4 Do accumulated tax losses Yes, however, certain Yes, in general (if a surviving
of surviving company conditions should be met. The company is not a recently
survive the merger/asset same conditions must be met purchased dormant
sale? as described above. company).
MALAYSIA Merger Asset Sale

1.1 Local integration method. No merger procedure is Asset sale.
available in Malaysia. Court-
sanctioned amalgamation
rarely used.
1.2 Can merger/asset sale be N/A. No.
perspectives?
1.3 Do accumulated tax losses N/A. Yes, however, the
of disappearing company accumulated tax losses of
survive the merger/asset the selling entity remain
sale? with the seller until
dissolution.
1.4 Do accumulated tax losses N/A. Yes, the accumulated
of surviving company tax losses of the buyer
survive the merger/asset entity survive the asset
sale? sale. However, the buyer
cannot utilize any of the
accumulated tax losses of
the seller.
Baker McKenzie l 79
PHILIPPINES Merger Asset Sale

1.2 Can merger/asset sale be No. Generally, no. An asset sale
retrospectively effective is effective on the date of
from tax and accounting completion of the asset
perspectives? transfer.
1.3 Do accumulated tax losses Generally, no. However, the Yes.
of disappearing company transfer of NOLs will be
survive the merger/asset allowed if the shareholders Losses incurred in trade or
sale? of the disappearing company business which are actually
gain control of at least 75% sustained during the taxable
in nominal value of the year (and not compensated
outstanding issued shares of for by insurance or other
the surviving company. forms of indemnity), including
a carryover of NOLs of
a business for the three
consecutive taxable years
immediately following the
year of such loss, may be
allowed for carryover.
However, a net loss incurred
in a taxable year during which
the taxpayer was exempt
from income tax (eg, for the
duration of the income tax
holiday incentive) shall not be
allowed for carryover.
In addition, carryover of
losses will only be allowed if
there has been no substantial
change in the ownership of
the business, ie, (i) not less
than 75% in nominal value of
the outstanding issued shares,
or (ii) not less than 75% of
the paid-up capital of the
corporation, is held by or on
behalf of the same persons.
sale?
80 l Baker McKenzie
Section 5
Tax Considerations
SINGAPORE Merger Asset Sale

1.1 Local integration Amalgamation. Asset sale.
method.
1.2 Can merger/ No. No.
asset sale be
retrospectively
effective
from tax and
accounting
perspectives?
1.3 Do accumulated Yes, subject to certain conditions being No, the accumulated tax losses
tax losses of met. This includes (but is not limited to): of the selling entity cannot
disappearing (i) the business continuity test — the be transferred to the buyer
company survive surviving company must continue to entity. A seller may transfer
the merger/asset carry on the same trade or business on its current year’s unabsorbed
sale? the date of amalgamation as that of the tax losses, capital allowances
disappearing company from which the and donations to another
unabsorbed tax losses were transferred; and Singapore company within
(ii) the shareholding test — the company’s the same group under a group
shareholders on the last day of the year relief scheme, subject to certain
the loss was incurred, or the donation was conditions being met.
made, must have been substantially the
same as the company’s shareholders on the
first day of the year of assessment in which
such loss, or donation, would otherwise be
deductible.
For capital allowances, the shareholding test
will be met if the company’s shareholders
on the last day of the year in which the
allowances arose (ie, the last day of the year
of assessment) were substantially the same
as the company’s shareholders on the first
day of the year of assessment in which such
allowances would otherwise be available.
In the event that the shareholding test is not
satisfied, the amalgamated company may
apply for a waiver of the shareholding test.
1.4 Do accumulated Yes, subject to the shareholding test being Yes, subject to the shareholding
tax losses met. In addition, for unabsorbed capital test being met. In addition, for
of surviving allowances, the business continuity test unabsorbed capital allowances,
company survive will need to be met and for unabsorbed the business continuity test
the merger/asset donations, the five-year carry forward will need to be met and
sale? limitation will apply. for unabsorbed donations,
the five-year carry forward
In the event that the shareholding test is not limitation will apply.
satisfied, the surviving company may apply
for a waiver of the shareholding test. In the event that the
shareholding test is not
satisfied, the buyer entity
may apply for a waiver of the
shareholding test.
Baker McKenzie l 81
TAIWAN Merger Asset Sale

1.1 Local integration method. Merger. Statutory acquisition of
assets under the Enterprises
Merger and Acquisition Law.
perspectives?
1.3 Do accumulated tax losses Yes. In proportion to the No.
of disappearing company shareholding ratio the
survive the merger/asset disappearing company’s
sale? shareholders hold in the
surviving company, the
net operating losses of the
disappearing company that
occurred within the preceding
five years may be credited
against the yearly net income
of the surviving company.
1.4 Do accumulated tax losses Yes. In proportion to the Yes.
of surviving company shareholding ratio the
survive the merger/asset surviving company’s
sale? shareholders hold in the
surviving company, the
net operating losses of the
surviving company that
occurred within the preceding
five years may be credited
against the yearly net income
82 l Baker McKenzie
Section 5
Tax Considerations
THAILAND Merger Asset Sale

1.1 Local integration method. Amalgamation, where two Asset sale.
or more companies are
amalgamated to create a
new company.
perspectives?
1.3 Do accumulated tax losses No. Accumulated tax losses of No. Accumulated tax losses
of disappearing company the amalgamating companies of the selling entity cannot
survive the merger/asset cannot be transferred to the be transferred to the buyer
sale? newly created company. entity.
1.4 Do accumulated tax losses N/A. There is no Yes.
of surviving company surviving company in
survive the merger/asset the amalgamation. This
sale? means that tax losses of
amalgamated companies will
be surrendered.
VIETNAM Merger Asset Sale

perspectives?
1.3 Do accumulated tax losses Yes. Tax losses of the If the selling entity has
of disappearing company disappearing company accumulated tax losses
survive the merger/asset survive the merger but as upon the asset sale, such tax
sale? a general rule, tax losses losses cannot be transferred
can be carried forward for to the buyer entity.
five consecutive years after
the year in which the loss is
incurred.
1.4 Do accumulated tax losses Yes. Tax losses of the surviving The buyer entity can carry
of surviving company company survive the merger forward its accumulated tax
survive the merger/asset but as a general rule, tax loss losses continuously for five
sale? can be carried forward for years from the year when
five consecutive years after the loss is incurred.
the year in which the loss is
incurred.
Baker McKenzie l 83
3 Europe, Middle East and Africa

AUSTRIA Merger Asset Sale
1.2 Can merger/asset sale be Yes, from nine months No.
retrospectively effective before the date the merger
from tax and accounting is legally effective.
perspectives?
1.3 Do accumulated tax losses Yes, provided the merger Yes, however, they remain
of disappearing company is effected at book value with the selling entity until
survive the merger/asset and the loss making asset is dissolution.
sale? attributable to the business
transferred and is still in
existence at the effective
date of the merger. A change
in the business may lead to
the forfeiture of the losses.
1.4 Do accumulated tax losses Yes, provided the loss making Yes. However a change in
of surviving company asset is still in existence at the the business before or after
survive the merger/asset effective date of the merger. the acquisition may lead to
sale? A change in the business may the forfeiture of the losses.
lead to the forfeiture of the
losses.
AZERBAIJAN Merger Asset Sale

1.1 Local integration method — Merger where two or more Asset sale.
merger or asset sale companies merge without
perspectives?
sale?
sale?
84 l Baker McKenzie
Section 5
Tax Considerations
BELGIUM Merger Asset Sale

1.1 Local integration method. Merger. Asset transfer.
1.2 Can merger/asset sale be From a tax and accounting No.
retrospectively effective perspective, the merger may
from tax and accounting be retrospectively effective
perspectives? to a date up to seven
months prior to the merger,
however, this date cannot
extend beyond the end of
the previous fiscal year of
the merging companies.
1.3 Do accumulated tax losses Yes, on a pro rata basis (based Yes, the tax losses of the
of disappearing company on tax net asset value). selling entity are not
survive the merger/asset affected by the transfer of
sale? the business.
1.4 Do accumulated tax losses Yes, on a pro rata basis (based Yes, the tax losses of
of surviving company on tax net asset value). the buyer entity are not
survive the merger/asset affected by the transfer of
sale? the business.
CZECH REPUBLIC Merger Asset Sale

1.2 Can merger/asset sale be Yes, up to 12 months from No.
retrospectively effective the date of filing the
from tax and accounting application for the merger
perspectives? at the Commercial Register.
1.3 Do accumulated tax losses Yes, subject to certain Yes, however, losses remain
of disappearing company conditions the tax losses may in selling entity until
survive the merger/asset only be utilized within the dissolution and may be
sale? period of five years following utilized within the period
the year when the tax loss is of five years following the
incurred. year when the tax loss is
incurred.
1.4 Do accumulated tax losses Yes, provided it meets certain Yes, provided it meets
of surviving company conditions including continuity certain conditions including
survive the merger/asset of business. continuity of business.
sale?
Baker McKenzie l 85
EGYPT Merger Asset Sale

1.1 Local integration method. Merger. Asset sale/asset sale
qualifying as a “transfer as a
going concern.”
1.2 Can merger/asset sale be Yes, to the beginning of the No.
retrospectively effective surviving company’s fiscal
from tax and accounting year (this may be the date
perspectives? of the company’s formation
if a new company was
formed).
1.3 Do accumulated tax losses No. Yes, until the selling entity is
of disappearing company dissolved.
sale?
1.4 Do accumulated tax losses of Yes. Yes.
surviving company survive
the merger/asset sale?
86 l Baker McKenzie
Section 5
Tax Considerations
FRANCE Merger Asset Sale

1.1 Local integration method. Merger (merger between Asset sale (transfer of a
stock companies/limited going concern).
liability companies or
dissolution without
liquidation).
1.2 Can merger/asset sale be Mergers can be retrospective No.
retrospectively effective for accounting and tax
from tax and accounting purposes. Dissolutions
perspectives? without liquidation may
only be retrospective for tax
purposes.
The retrospective effect is
limited in time (the limit
depends on the closing
and opening financial year
dates of the parties, the
retrospective date chosen
and other facts).
1.3 Do accumulated tax losses Losses can survive subject to Losses remain in selling
of disappearing company a ruling from the competent entity until dissolution
survive the merger/asset tax authorities and the and can be offset against
sale? fulfillment of a number capital gain deriving from the
of conditions such as transfer of assets (subject to
maintaining the activity (of certain offset limitations).
the absorbed entity) which
generated the losses for at In the case of a partial
least three years. transfer of business only,
and if this transfer leads
to a significant change of
activity at the seller, the
remaining losses would be
forfeited.
1.4 Do accumulated tax losses Yes, as long as the surviving Yes, as long as the buyer
of surviving company entity does not significantly entity does not significantly
survive the merger/asset change its activity as a result change its activity as a
sale? of the merger. result of the transaction.
Baker McKenzie l 87
GERMANY Merger Asset Sale

1.1 Local integration method — Merger. Asset sale.
merger or asset sale
1.2 Can merger/asset sale be Yes, to the date of the merger No.
retrospectively effective closing accounts, but only
from tax and accounting for the purposes of income
perspectives? tax, corporate income tax
and trade tax (ie, not for VAT,
wage tax, social security).
1.3 Do accumulated tax losses No. Yes, losses remain with
of disappearing company selling entity until
survive the merger/asset dissolution, unless change
sale? in financial control cancels
losses earlier.
1.4 Do accumulated tax losses Yes, unless merger results in Yes, unless the business sale
of surviving company change of financial control, is followed by change of
survive the merger/asset for example, through issuance financial control.
sale? of new shares. Under certain
circumstances, losses of the
surviving company may not
be used to offset profits
generated by the disappearing
company within the
retrospective period.
HUNGARY Merger Asset Sale

1.1 Local integration method. Merger (amalgamation). Asset sale (sale of a business
unit).
perspectives?
1.3 Do accumulated tax losses Yes, provided that (i) an Yes, losses remain with
of disappearing company existing direct or indirect selling entity until its
survive the merger/asset majority shareholder or its dissolution or the expiration
sale? related party will have a of the losses, whichever is
majority ownership in the earlier.
surviving company and
(ii) the surviving company
continues at least one of
the disappearing company’s
business activities and earns
revenue from it for two
subsequent and consecutive
fiscal years.
sale?
88 l Baker McKenzie
Section 5
Tax Considerations
ITALY Merger Asset Sale

1.1 Local integration method. Merger. Asset sale (sale of business
unit).
1.2 Can merger/asset sale be Yes, provided that the No.
retrospectively effective effective date does not
from tax and accounting precede the closing date of
perspectives? the last fiscal year of any of
the companies participating
in the merger or, if more
recent, the closing date of
the last fiscal year of the
surviving company.
1.3 Do accumulated tax losses Yes, to the extent that Yes, however, tax losses
of disappearing company they do not exceed the remain with selling entity
survive the merger/asset adjusted net equity of the until dissolution.
sale? disappearing company and
to the extent that certain
economic vitality conditions
are met. (Similar restrictions
apply to the excess of
net interest expenses and
notional interest deduction
carried forward.)
In the event that the tax
effects of the merger are
retroactive, the above
restrictions apply also to the
tax attributes accrued from
the beginning of the year up
to the moment the merger is
executed.
1.4 Do accumulated tax losses Yes, to the extent that they Yes.
of surviving company do not exceed the adjusted
survive the merger/asset net equity of the surviving
sale? company and to the extent
that certain vitality conditions
are met. (Similar restrictions
apply to the excess of net
interest expenses and notional
interest deduction carried
forward.)
In the event that the tax
effects of the merger are
backdated, the above
restrictions apply also to the
tax attributes accrued from
the beginning of the year up
to the moment the merger is
executed.
Baker McKenzie l 89
KAZAKHSTAN Merger Asset Sale

perspectives?
1.3 Do accumulated tax losses Yes, the accumulated tax No.
of disappearing company losses should be assumed by
survive the merger/asset the surviving company as
sale? the full legal successor of the
disappearing company.
1.4 Do accumulated tax losses Yes. Yes, generally, accumulated
of surviving company tax losses of the surviving
survive the merger/asset company would not be
sale? affected by the sale.
LUXEMBOURG Merger Asset Sale

1.2 Can merger/asset sale be From an accounting Yes.
retrospectively effective perspective, the merger
from tax and accounting may be retrospectively
perspectives? effective but not before the
opening date of the current
financial year of the surviving
company.
From a tax perspective,
the merger cannot be
retrospectively effective.
of disappearing company with selling entity until
survive the merger/asset dissolution (and then
sale? disappear).
sale?
90 l Baker McKenzie
Section 5
Tax Considerations
MOROCCO Merger Asset Sale

1.1 Local integration method. Merger. Asset sale (“sale of going
concern” (cession de fond
de commerce) or asset
contribution (apport partiel
d’actif)).
1.2 Can merger/asset sale be Yes; however, the effective No.
retrospectively effective date must be set between
from tax and accounting the fiscal year start date of
perspectives? the disappearing company
and the fiscal year end date
1.3 Do accumulated tax losses No. Losses remain in selling
of disappearing company entity until dissolution and
survive the merger/asset can be offset against capital
sale? gain deriving from the
transfer of assets (subject to
certain offset limitations).
sale?
Baker McKenzie l 91
NETHERLANDS Merger Asset Sale

1.1 Local integration method. Legal merger. Asset sale.
1.2 Can merger/asset sale be Yes, merger can be In principle, no. However,
retrospectively effective retrospectively effective as of if an entire business or an
from tax and accounting the beginning of the financial independent business unit
perspectives? year, provided certain is transferred in return for
conditions are satisfied. shares in the buyer’s share
capital, the transfer can be
as of the beginning of the
financial year, provided
certain conditions are
satisfied.
1.3 Do accumulated tax losses No, unless a request is filed No, however, assuming
of disappearing company with the tax authorities that an entire business or
survive the merger/asset requesting application of the an independent business
sale? legal merger facility (rollover unit is transferred in return
of book value of disappearing for shares in the buyer’s
entity’s assets, deferral of share capital, a request
taxation of capital gains). could be filed with the
tax authorities requesting
The ruling will stipulate application of the company
that pre-merger losses of merger facility (rollover of
the disappearing entity can book value of seller’s assets,
only be compensated with deferral of taxation of
the post-merger profits capital gains).
attributable to the business
of the disappearing company. The ruling will stipulate
that the seller’s losses from
before the business transfer
can only be compensated
with the profits made after
the business transfer that
are attributable to the
business of the seller.
1.4 Do accumulated tax losses Yes, subject to approval of Yes, only if the asset sale
of surviving company the tax authorities, tax losses takes the form of a transfer
survive the merger/asset will remain with the surviving of an entire business or
sale? company but may only be an independent business
set off against future profits unit in return for shares in
attributable to the business of the buyer’s share capital
the surviving company. and subject to approval
of the tax authorities, tax
losses will remain with the
buyer but may only be set
off against future profits
attributable to the business
of the buyer.
92 l Baker McKenzie
Section 5
Tax Considerations
POLAND Merger Asset Sale

1.2 Can merger/asset sale be Generally, no. However, in No.
retrospectively effective certain cases, a merger can
from tax and accounting be retrospective for tax
perspectives? purposes to the beginning
of the current fiscal year,
provided that certain
accounting conditions are
satisfied.
1.3 Do accumulated tax losses No, the tax losses of the Yes, however, losses remain
of disappearing company disappearing company are with selling entity until
survive the merger/asset forfeited. dissolution.
sale?
1.4 Do accumulated tax losses Yes, the losses of the surviving Yes.
of surviving company company remain available.
sale?
QATAR Merger Asset Sale

perspectives?
1.3 Do accumulated tax losses No. Tax losses stay with the Yes, however, losses remain
of disappearing company company that generated with selling entity until
survive the merger/asset them. Therefore, the losses of dissolution.
sale? a disappearing company will
not survive the merger.
1.4 Do accumulated tax losses Yes. The losses of the surviving Yes. The losses generated
of surviving company company should survive the by the buyer prior to the
survive the merger/asset merger. transaction stay with the
sale? buyer.
Baker McKenzie l 93
RUSSIA Merger Asset Sale

1.1 Local integration method. Merger. Asset sale (which can be
structured as a sale of
separate assets or as a sale
of an enterprise).
perspectives?
1.3 Do accumulated tax losses Yes, such accumulated tax No.
of disappearing company losses should be assumed by
survive the merger/asset the surviving company as
sale? the full legal successor of the
1.4 Do accumulated tax losses Yes. Yes, generally, accumulated
of surviving company tax losses of the buyer
survive the merger/asset entity would not be
sale? affected by a sale of an
enterprise.
SAUDI ARABIA Merger Asset Sale

1.2 Can merger/asset sale be Not from a tax perspective. No.
from tax and accounting From an accounting
perspectives? perspective, a merger
may qualify as a pooling
of interests, which would
require the presentation
of financial statements as
though the enterprise had
been combined as of the
beginning of the accounting
period.
sale?
1.4 Do accumulated tax losses Yes, from a tax perspective, Yes, from a tax perspective,
of surviving company the accumulated tax losses of the accumulated tax losses
survive the merger/asset the surviving company would of the surviving company
sale? be allowed to be carried would be allowed to be
forward for set off against the carried forward for set
future profits of the combined off against the future
company subject to certain profits of the combined
conditions, provided that the company subject to certain
surviving company has not conditions, provided that
changed its ownership or the surviving company has
control by 50% or more. not changed its ownership
or control by 50% or more.
94 l Baker McKenzie
Section 5
Tax Considerations
SOUTH AFRICA Merger Asset Sale

1.1 Local integration method. Merger (since May 2011 Asset sale.
under the South African
Companies Act).
Due to some remaining
uncertainty on the practical
implementation of some
of the statutory merger
provisions and potentially
cumbersome procedural
requirements vis-à-vis
creditors and undesired
tax consequences, this
integration method is
currently very rarely used in
practice.
perspectives?
1.3 Do accumulated tax losses No. Yes, the accumulated losses
of disappearing company will remain with the selling
survive the merger/asset entity until it is liquidated/
sale? deregistered.
sale?
Baker McKenzie l 95
SPAIN Merger Asset Sale

1.2 Can merger/asset sale be Yes, compulsory retrospective No.
retrospectively effective effect from an accounting
from tax and accounting perspective to the later of:
perspectives? (i) the date on which the
merged companies became
members of the same group;
and (ii) the first day of the
fiscal year in which the
merger takes place.
1.3 Do accumulated tax losses Yes, subject to limitations Yes, however, losses remain
of disappearing company and conditions designed to with selling entity until
survive the merger/asset avoid the possibility of using dissolution.
sale? accumulated tax losses more
than once.
sale?
SWEDEN Merger Asset Sale

1.2 Can merger/asset sale be Yes. For tax purposes, a No.
retrospectively effective merger may be retrospective
from tax and accounting up to the beginning of
perspectives? the last book year of the
assumed company to the end
of the surviving company’s
book year. This cannot exceed
18 months.
1.3 Do accumulated tax losses Yes, subject to certain Yes, however, losses remain
of disappearing company limitations and conditions. with selling entity until
sale?
1.4 Do accumulated tax losses Yes, subject to certain Yes.
of surviving company limitations and conditions.
sale?
96 l Baker McKenzie
Section 5
Tax Considerations
SWITZERLAND Merger Asset Sale

1.2 Can merger/asset sale be Yes, retroactive effect for up No.
retrospectively effective to six months is possible.
perspectives?
1.3 Do accumulated tax losses Yes, unless merger is wholly No.
of disappearing company or mainly motivated for
survive the merger/asset tax reasons (ie, to access
sale? tax losses of transferring
company: generally the
merging companies must
have been active prior to the
merger and operations should
continue in the surviving
entity).
1.4 Do accumulated tax losses Yes, unless merger is wholly Yes.
of surviving company or mainly motivated for tax
survive the merger/asset reasons (ie, to access tax losses
sale? of transferring company:
generally the merging
companies must have been
active prior to the merger and
operations should continue in
the surviving entity).
TURKEY Merger Asset Sale

perspectives?
1.3 Do accumulated tax losses Yes, provided certain Yes. The selling entity’s
of disappearing company conditions are met, the losses can be used to shelter
survive the merger/asset surviving company may any gain derived from the
sale? deduct the losses from asset sale.
the last five years of the
sale?
Baker McKenzie l 97
UNITED KINGDOM Merger Asset Sale

1.1 Local integration method. No merger procedure Asset sale.
available in the UK.
Court-sanctioned scheme
of arrangement or
reconstruction rarely used.
perspectives?
1.3 Do accumulated tax losses N/A. Subject to certain conditions
of disappearing company being met, where a
survive the merger/asset company ceases to carry
sale? on its trade and another
company begins to carry on
this trade, the trading losses
that have accrued pre-1 April
2017 should be available to
set against profits from the
same trade going forward. It
will be possible to use losses
accruing from 1 April 2017
(including trading and non-
trading losses) on a transfer
to set against the profits
of the buyer entity, subject
to certain restrictions (eg,
on a change of ownership,
among others).
Capital losses cannot be
transferred, however,
subject to certain
restrictions, the selling
entity and buyer entity
may elect to allocate a gain
arising on the transferred
capital assets to the selling
entity such that it can offset
the gain against its carried
forward capital losses.
1.4 Do accumulated tax losses N/A. Yes, subject to conditions.
sale?
98 l Baker McKenzie
Section 5
Tax Considerations
UKRAINE Merger Asset Sale

perspectives?
1.3 Do accumulated tax losses According to the current Yes, until the dissolution of
of disappearing company position of the tax such company. Separately,
survive the merger/asset authorities, accumulated tax if the selling entity sells its
sale? losses of the disappearing assets, any capital gains
company are not transferred received as a result of such
to the surviving company in sale may generally be offset
the course of the merger. against its accumulated tax
losses.
sale?
UNITED ARAB EMIRATES Merger Asset Sale

1.2 Can merger/asset sale be N/A as described below. N/A as described below.
perspectives?
1.3 Do accumulated tax losses N/A as the United Arab N/A as the United Arab
of disappearing company Emirates currently has Emirates currently has
survive the merger/asset no federal tax laws. Tax no federal tax laws. Tax
sale? legislation does exist in legislation does exist
individual Emirates, however, in individual Emirates,
most are never applied in however, most are never
practice. To date, only oil, gas applied in practice. To
and petrochemical companies date, only oil, gas and
and branch offices of foreign petrochemical companies
banks are required to pay and branch offices of
taxes. Where a company is foreign banks are required
subject to tax, the utilized to pay taxes. Where a
losses of the disappearing company is subject to tax,
company cannot be carried the utilized losses of the
forward. disappearing company
cannot be carried forward.
1.4 Do accumulated tax losses N/A as described above. N/A as described above.
of surviving company However, if the surviving However, if the surviving
survive the merger/asset company is subject to tax, its company is subject to tax,
sale? losses can be carried forward. its losses can be carried
forward.
Baker McKenzie l 99
Section 6
Employment
The careful management of personnel issues is a key element of the integration
of a newly acquired business. The legal and operational changes arising from a
post-acquisition integration may cause uncertainty and unrest for some staff. This
includes existing staff as well as staff of the newly acquired business). Employees
can be resistant to change, and navigating integration matters in a clear and
effective way is both vital to mitigating legal risks and crucial to the operational
success of the integration.
There are many legal considerations which should influence, and be incorporated
into, the human resources section of the integration plan, both in respect of what
can realistically be achieved from a hiring perspective and contingencies in the event
that integration plans are met with resistance from staff or their representative
bodies. This is particularly true of many countries outside of the United States. Some
desired changes may be legally impossible, create unacceptable risks, or may only be
possible with employee consultation or consent. Others may be difficult to achieve
without careful preparation, and a deep understanding of the industrial relations
climate in the relevant jurisdiction.
In addition to the legal issues outlined below, operational matters need to be addressed,
such as: How can key individuals be retained in the relevant jurisdictions? And how can
the different cultures of the acquiring entity and the acquired entity be integrated so as
to achieve stability and maintain good morale? Planning for such issues will often have a
direct impact on the success of the post-acquisition integration.
Common post-acquisition measures taken by an acquiring company include merging
two or more businesses following an acquisition, downsizing and/or restructuring its
workforce and/or harmonizing the terms and conditions of its new and existing staff.
Below are some of the key considerations which should be taken into account when
considering such measures in the European Union, the Americas or Asia Pacific.
1 The European Union

As at the date of publication, the European Union has 28 Member States. Following
a referendum held on 23 June 2016, the United Kingdom voted to withdraw from the
European Union (colloquially known as “Brexit”) and the UK government has, with
effect from 29 March 2017, invoked the formal procedure for withdrawal from the EU.
This, within the treaty terms, puts the UK on a course to leave the EU by March 2019.
Prime Minister Theresa May has promised to incorporate existing EU laws into UK
domestic law, however much could change during the formal withdrawal negotiations.
100 l Baker McKenzie

Section 6
Employment
Other European non-EU countries (for example, Switzerland and Norway) generally
follow a similar approach on the following employment topics.
1.1 Post-Acquisition Mergers/Asset Transfers

Following an acquisition, the purchaser will often wish to integrate, in each local
jurisdiction, the new subsidiaries into its existing subsidiaries, or all its subsidiaries
into a new company. As noted in Section 2 and Section 5, this can be achieved by
way of an asset transfer or, in some jurisdictions, a statutory merger procedure. Any
such merger or transfer within the European Union will often trigger the “Acquired
Rights Directive” (“ARD”) (or, strictly, the implementing legislation passed by the
relevant EU Member State pursuant to the ARD). Whether or not the ARD applies to
a particular consolidation will depend upon the structure of the proposed business
transfer and the applicable detailed rules, which can differ between EU Member
States. Where it applies, the ARD will have significant implications for the acquiring
company.
1.1.1 Automatic Transfer of Employees
If the ARD applies, all of the employees assigned, immediately before the transfer,
to the business (or part of business) being transferred will automatically transfer
by operation of law to the transferee entity. Where parts of subsidiaries are being
transferred, care needs to be taken to identify the employees falling within scope to
transfer, and to ensure that they transfer to the correct entities. Difficulties can occur
with employees who have responsibilities in relation to more than one business and
they should be looked at carefully. In most jurisdictions, the ARD applies only to
employees (however, what constitutes an “employee” is defined by each EU Member
State and can vary considerably). However, generally atypical workers such as direct
contractors and agency staff will fall outside the ambit of the ARD and so businesses
will need to consider separately how their transfer will be achieved.
1.1.2 Transfer of Terms, Conditions and Liabilities
Employees transferring automatically pursuant to the ARD transfer on their existing
terms and conditions. All rights and liabilities in respect of their employment also
transfer, as do any existing collective agreements. The ARD places strict limitations
on the ability to vary terms and conditions to the employees’ detriment following
the transfer and, although the extent of the restrictions varies between jurisdictions,
these create obstacles to harmonizing terms and conditions. If changes to terms and
conditions are crucial, advice should be taken prior to the acquisition and integration
to establish the feasibility of making the changes, whether any consultation will be
required to effect such change, the timing for implementation and the extent of any
residual risk. If the harmonization has the effect of improving terms and conditions
overall, it may be that from a practical point of view it can be implemented without
provoking objections from employees, notwithstanding the strict letter of the law.
Baker McKenzie l 101

In other circumstances it may be preferable to delay the merger (potentially by a

number of years) and make the relevant changes while the companies are separate
legal entities. Particular problems can arise in respect of certain employee benefits
which are difficult or impossible to replicate following the transfer, for example,
stock options, collective agreements (where the different subsidiaries recognize
different unions) and restrictive covenants (which may lose their meaning, or provide
inadequate protection, following the transfer).
Most rights under occupational pension schemes do not transfer automatically under
the ARD. However, some pension rights do transfer, for example in relation to early
retirement benefits. This will depend on the terms of the scheme. Country-specific
advice should be obtained to address specific pension issues.
1.1.3 Consultation Obligations
Before an ARD transfer takes place, both the transferor and the transferee
are required to inform, and under the laws of some countries consult with,
representatives of any of their employees who will be “affected” by the business
transfer. This requirement should be built into the planning process and will have a
timing impact. Jurisdictions differ as to how long before the transfer the information
and consultation process should take place, but if consultation is required, it must
be long enough for genuine consultation to occur before the transfer is effected.
The appropriate employee representative body will normally be the recognized
union(s) or existing works council(s), if there are any. Otherwise, a body may need to
be established, generally through a statutory prescribed election procedure, adding
further time to the process. If the group has an established European Works Council,
there may be a separate requirement to consult with that body. This will depend
on the terms of the relevant agreement and the number of countries impacted. In
some jurisdictions, a failure to consult can render the transfer void or give rise to a
criminal offense, while in others the sanctions are limited to financial penalties and/
or compensation for the employees concerned.
1.1.4 Protection Against Dismissal
Employees who are transferred pursuant to the ARD are in a protected category.
They cannot be dismissed (either before or after the transfer) solely because the
business has been transferred unless the dismissal is for an “economic, technical
or organizational” reason which entails a change in the workforce. The way that
expression has been interpreted by courts in different EU Member States varies
to some degree, and the relevant local restrictions must be considered before
commencing a dismissal process before or after a local integration.

Section 6
Employment
1.2 Downsizing
If, following the acquisition of the new business, the acquiring company plans to
downsize the workforce in the newly acquired business, for example, by closing
down a plant, four key employment law issues need to be considered:
• the legal justification for the dismissals
•
the consultation and other procedural requirements (both collective and
individual)
• the selection criteria for redundancy which can and should be used
• termination payments
In addition, if the redundancies occur before or after a business transfer which
triggers the ARD (as explained above), additional consideration must be given to the
dismissal protection provisions of the local ARD legislation (see further at paragraph
1.1.4) which can increase the risk profile considerably.
1.2.1 Legal Justification
In some countries, a high standard of justification is required in order to carry out
dismissals. In others, employers have considerable discretion. Country-specific advice
should be sought.
1.2.2 Consultation and Other Procedural Requirements
As a result of the EU Collective Redundancies Directive, each of the EU Member
States has enacted legislation which requires an employer to consult with employee
representatives prior to effecting a collective redundancy. As the time periods for the
consultation procedures can significantly delay local post-acquisition integrations, it
is very important that the scope of any potential downsizing is identified when the
key objectives of the integration are considered at the start of the planning process.
The extent of the employee representatives’ powers to delay the process varies from
country to country.
The requirements are triggered when the number of contemplated redundancies
exceeds a specified threshold over a specified period of time. The threshold differs
between jurisdictions, but can be triggered in some jurisdictions when the number of
contemplated redundancies is as low as two employees over a period of 30 days.
The matters to be covered in the consultation process will include: the possibility of
avoiding collective redundancies or reducing the number of workers affected; and
ways of mitigating the consequences, for example, by recourse to accompanying
social measures aimed at helping to redeploy or to re-train workers made redundant.

The consultation must begin in good time prior to the redundancies taking effect.
Certain jurisdictions lay down specific timeframes, which can be three months or
more depending on the numbers of impacted employees. In some countries, this may
require negotiation of a social plan. The rules in the specific jurisdiction should be
checked. In addition, the employer has an obligation to provide certain information
to the employee representatives, such as the numbers and categories of workers
involved and the proposed selection criteria. The employer must also notify “the
competent public authority.”
Generally, the appropriate body to consult with (as with consultation in relation
to ARD business transfers described above) will be the recognized union(s) or the
existing works council(s), if there are any in respect of the affected employees.
Otherwise, arrangements may need to be made to elect a representative body. If it
is anticipated that collective consultation will be required in relation to both an ARD
transfer and a collective redundancy. Representatives can be elected with a remit to
cover both processes in order to avoid duplicative election processes.
In some jurisdictions, a failure to consult can render the redundancies void; in
others the sanctions are limited to financial penalties and/or compensation for the
employees.
As well as collective consultation requirements, the majority of EU Member States
impose additional procedural requirements on employers making redundancies, even
where a single redundancy is being effected. Rules differ significantly and should be
taken into account for the relevant jurisdictions. There may also be company-specific
contractual requirements (in terms of process and/or severance pay entitlements
in the event of redundancy) which the acquiring company inherits from the
transferring company.
1.2.3 Selection Criteria
Many EU Member States have rules about what type of selection criteria an
employer may reasonably apply when selecting candidates for redundancy. Some
jurisdictions, such as the United Kingdom, give considerable scope to the employer,
others are very formulaic and will strictly apply, for example, a “last in, first out” rule.
A number of jurisdictions require employers to take social factors into account, such
as whether the employee is the sole earner and whether he/she has children or other
dependents, or protect certain categories of employees from dismissal, for example,
works council members.
1.2.4 Severance Payments
Most EU Member States require employers to make severance payments to
employees who are dismissed by reason of redundancy. The formulae for calculating
the level of payments vary significantly. In addition, most employees will have the
right to a minimum period of notice of termination of their employment, either
under their employment contracts or under local legislation. Again, there may also

Section 6
Employment
be company-specific contractual severance pay entitlements which the acquiring

company inherits from the transferring company.
1.3 Harmonization of Terms and Conditions

Following an acquisition, an employer will often wish to harmonize the terms and
conditions of its new employees with those of its existing employees, for commercial
and efficiency reasons and to integrate the new employees into the established
working culture of the acquiring organization. However, employees in EU Member
States are afforded significant protection of their contractual rights which limits the
extent to which any employer can impose variations to their terms and conditions
in connection with a business transfer which triggers the ARD (as explained in
paragraph 1.1). Generally, the consent of the employees will be needed to achieve the
variation. Otherwise, the employees will frequently have the right to claim breach of
contract and/or constructive dismissal/discharge (and enforce the local employment
protection legislation against the employer). Strategies for the implementation
of such changes should be developed by the employer in the context of the local
legislation. Again, forward planning is a crucial part of the process, as such strategies
can sometimes involve effecting theoretical collective redundancies (which will
trigger the collective consultation requirements described above) and/or giving
the employees such notice of the variations as they would be entitled to if their
employment was being terminated.
In jurisdictions where the employer has recognized a union or works council,
harmonization may require consultation, or even agreement, with the relevant
employee representatives, which can result in protracted negotiations.
The employees’ protection is even greater when the harmonization takes place
in connection with a business transfer which triggers the ARD (as explained in
paragraph 1.1). In some jurisdictions, their terms and conditions simply cannot
be changed for the worse, even if the employees give their consent, if the
change is related to the business transfer (which it often will be in the context of
harmonization). Even if consent is, ostensibly, obtained, some jurisdictions such as
the UK allow employees to challenge the variation and insist that more favorable
terms that applied immediately before the transfer continue to apply. In other
jurisdictions there is a specified period of protection which needs to expire before
changes are made. Again, appropriate strategies need to be developed in the context
of the relevant local legislation. It may sometimes be advisable for the acquiring
company not to merge the relevant businesses, but to retain the entities purchased,
thereby preventing the complications which arise from the ARD.
1.4 Restructuring/Relocating the Workforce

Restructuring the workforce can involve any or all of the measures described in the
preceding paragraphs.

The restructuring of the functions within a business will often be treated as

resulting in redundancies under the legislation of EU Member States. While overall,
the number of employees required by an employer may remain the same, or
even increase, the fact that the specific job for which an employee was engaged
is eliminated will be sufficient to constitute a redundancy. The employer would,
therefore, need to follow the appropriate redundancy procedures for the relevant
jurisdiction (both individual and collective procedures where necessary).
Similarly, relocations can constitute redundancies in EU Member States where the
relocation is out of the immediate area of the existing location of employment,
triggering the obligations described in paragraph 1.2. Even where an employer
seemingly has a contractual right to relocate, local legislation may place limits on the
exercise of that right, to the extent that certain relocations may need consultation or
even consent. Again, in jurisdictions where there are recognized unions or established
works councils, an employer will often need to consult or agree proposed relocations
with the union/works council.
1.5 Data Protection and Privacy

Proper consideration of data protection and privacy issues is becoming an
increasingly important aspect of post-acquisition integration, where the processes,
policy and approach to data privacy adopted by the newly acquired business may
differ considerably from that of the employer.
Works councils, trade unions and other employee representative bodies take the
protection of employee data very seriously. Providing comfort that adequate steps
have been taken to safeguard employee data privacy can be an important part of a
consultation process. This is particularly true of many countries in mainland Europe.
The EU General Data Protection Regulation (“GDPR”) comes into force on 25 May
2018. It imposes a higher standard of data protection compliance on organizations
and is accompanied with potential fines reaching up to 4% of worldwide turnover in
the event of breach.
Employees in EU Member States are afforded protections in respect of their personal
data, with limitations on the processing of such data without employee consent. In
the integration process, the acquiring entity is likely to be the recipient of a large
amount of employee data falling within the scope of data protection rules. Early
regard should be had to the types of data held, the reasons for processing such data,
and the territories to which personal data is (or will be) transferred.
A key deliverable under the GDPR is a data inventory demonstrating the flow of
personal data. This involves keeping a detailed record of what personal data is held
about which people (employees, contractors, etc.), who the data is shared with,
where it is accessed around the world and which third parties support the processing
of data. Following an acquisition, the employer’s data map will need to be updated

Section 6
Employment
to take into account the new personal data it will acquire. This will involve input
from various constituencies of the employer and the newly acquired business,
including IT, procurement, marketing and human resources.
Under the GDPR, a fundamental requirement is transparency. This means that the
employer will have to update its data processing notice as it is likely some of the
data processing activity may have changed following an acquisition. This notice
explains to employees what personal data is being processed, why and how it is
being processed, who is doing the data processing, who the data protection contact
is, and what the employees’/workers’ rights are in relation to their data.
Another key consideration is whether employee data will be transferred outside
the European Economic Area (“EEA”) in consequence of the integration. This point
should be considered where anyone outside the EEA (for example, in the US) is able
to access the employee data. There are several ways to comply, but the simplest
method is to enter into agreements based on the European approved “model
clauses.” In some countries the transfer of personal data may require works council
approval (or consultation at a minimum). Organizations will also have to ensure that
contracts with third-party service providers who handle employee data contain
appropriate data protection provisions.
2 The Americas
United States
In the United States, employment is governed by contract and federal, state
and local laws. These laws, along with any contractual obligations (for example,
employment contracts/offer letters, severance plans, policies, practices or programs,
change in control agreements, etc.) will govern any post-acquisition restructuring,
downsizing, and/or harmonization of the terms and conditions of employment for
existing employees.
The majority of employees in the United States are employed “at will” and,
consequently, changes to the identity of their legal employer (in the case of a post-
acquisition merger) can normally be achieved easily through a termination and rehire
of those employees. Generally, employers can also unilaterally change non-unionized
employees’ terms and conditions of employment for the purposes of harmonization
or otherwise.
Downsizing may also be relatively straightforward, although there are a number of
steps employers may need to take to ensure any layoffs are lawfully implemented
depending on the number of employees involved, and whether any employees
impacted by the layoffs are in a protected category (for example, by reason of their
age, gender, race, religion, sexual orientation (in certain states) or the business is

unionized, which all need to be considered). However, some of the key issues which
should be considered in each case are described in the following paragraphs.
2.1 Transfer of Employees to Surviving Entity

In the United States, employees transfer automatically in a merger, unless the merger
results in a change of the employer for the impacted employees (as for example, in
the case of a forward merger).
If the merger results in a change to the employer, then whether employment
transfers automatically depends on the application of successor-in-interest rules
under applicable state law.
In an asset sale, employees “transfer” through a termination and rehire (which
requires a payout of the employee’s final wages and any accrued entitlements by the
seller, and rehire by the buyer on new terms and conditions of employment).
2.2 Notice and Consultation

Given that the majority of employees in the United States are employed “at will,”
there are generally no statutorily required notice and consultation obligations in
connection with a change in their legal employer, harmonization of terms and
conditions of employment, and/or downsizing (or otherwise). The exceptions being
if WARN (see paragraph 2.3.1) is triggered or if contractually required (for example,
collective bargaining agreement for union employees, etc.).
With respect to unionized businesses, the union must be notified at the time of
signing, or in any event when the transaction is made public. Collective agreements
should also be reviewed for any applicable notification or consultation requirements.
Negotiation over the transaction is generally not required unless specified in the
collective bargaining agreement. Effects bargaining would be required to the extent
the transaction adversely impacts any covered employees. However, to the extent
the buyer assumes the existing collective bargaining agreement, there would likely
be no effects bargaining required.
2.3 Downsizing and Restructuring

As noted above, in the United States, because employment is presumed to be
“at will” the termination process generally does not require notice, consultation
or severance payments, unless WARN is triggered or if contractually required (for
example, collective bargaining agreement for union employees, severance plans,
policies, programs or practices, change in control agreements, and the like). In
addition, the employer should ensure that it uses valid and objective selection
criteria in making termination decisions in order to avoid potential discrimination or
other claims.

Section 6
Employment
2.3.1 WARN and Other Notice Requirements

The federal Worker Adjustment and Retraining Notification Act (“WARN”) requires
employers to provide advance notice if they employ 100 or more people and intend
to dismiss at least 50 employees (or one-third of its US workforce if greater), which
may include employees working overseas. Federal WARN does not generally apply
upon the sale of a business provided there is no break in service. Some states also
have similar laws, but the thresholds are often lower and there may not be the same
exceptions as under federal WARN.
Besides applying to downsizing situations, WARN can apply in other restructuring
scenarios. For example, if the relevant thresholds are met, a reduction in individual
employees’ work hours of more than 50% during each month of any six-month
period can fall within its scope.
There are other notification requirements which may arise under state or federal law
in the event of dismissal, such as the obligation to notify employees of their rights
to obtain unemployment insurance benefits or to purchase health insurance under
Consolidated Omnibus Budget Reconciliation Act of 1985.
2.3.2 Contractual Rights
Although the majority of employees in the United States are employed “at will,”
some employees will have certain contractual rights. Those contractual rights
need to be considered in the context of the proposed integration process. Some
employees (particularly officers) will have contracts of employment which give them
the right to a specified period of notice and/or a severance payment in the event of
a termination, including “transfer” occurring through a termination and rehire. The
contract may also contain a change of control clause requiring payments to be made
in the event of an acquisition or restructuring.
If the employer has a collective bargaining agreement with any trade union relating
to the affected employees, the collective agreement is likely to have an impact
on any proposed restructuring. Collective agreements may also include provisions
governing redundancy selection criteria, notice and severance. In addition, if its
workforce is unionized, the employer should ensure that its actions are consistent
with the National Labor Relations Act.

Since employees in the United States are generally employed “at will,” employers
may impose new terms and conditions on employees, provided that they do not do
so in violation of any applicable federal, state, or local laws (for example, governing
discrimination or harassment, wages or working hours, collective bargaining
agreements and the like).


Although the US does not have a comprehensive federal data privacy law, companies
in the US are subject to various data privacy requirements at the federal and/or state
level. Some privacy laws focus on particular industries, such as healthcare, financial
services and telecommunications, while other privacy laws focus on particular
activities, such as consumer reporting and background checks. These could cover
employee data in somewhat unexpected ways (for instance, where employees
are also consumers of financial products or participate in health plans offered by
the employer). US laws also focus on particular data types, such as Social Security
numbers, bank account numbers, credit card numbers and health information. In
addition, a growing number of states have enacted laws requiring entities that
possess certain categories of information, which could include employee information,
to implement various data security measures and comply with various obligations in
the event of a data breach. Employers should also ensure that they have considered
circumstances where it may be necessary to define and negate any expectation of
employee privacy, and that they have done so through policy.
Unlike the EU, there is no specific prohibition on the transfer of employee personal
data, although certain types of data transfers may require employee notice and/or
consent. In addition, contractual protections for data transfers are recommended,
as these could provide for a commercially negotiated level of indemnification in
respect of damages arising out of data breach or loss. This could be a useful tool
in the right circumstances, given that class action enforcement is more common in
the US than elsewhere. Moreover, companies that are certified under the US/EU
Privacy Shield Framework must adhere to the relevant guidelines for transfer under
that scheme (with respect to data originating in the EU) or risk direct enforcement,
including financial penalties, by the Federal Trade Commission or the Department of
Transportation, as applicable.
Finally, an increasing number of US states have enacted laws requiring entities that
possess certain categories of information, which could include employee information,
to implement various data security measures and comply with various obligations in
the event of a data breach.
Canada
In Canada, employers are either provincially or federally regulated, depending on the
nature of their business. The majority of employees are employed by provincially
regulated employers. Federal employers comprise employers in defined industries
such as telecommunications, nuclear energy, shipping, banking and other industries
considered to be of national interest. There are three sources of law applicable to
provincial or federal employers: statutory (each jurisdiction has its own employment
statutes), common law (except in the province of Quebec which is based on a Civil
Code), and employment contracts. This legal framework will govern any post-

Section 6
Employment
acquisition integration actions undertaken by the acquiring company. Below is a

discussion of the main issues which should be considered in the context of such
integrations in Canada, but the specific rules may differ depending on individual
circumstances.

As in the US, Canadian law (other than in Quebec) does not provide for the
automatic transfer of employees upon the transfer of the assets of a business. The
transfer of employees would need to be achieved by way of a termination by the
existing employing entity coupled with a simultaneous hiring by the surviving entity.
Unlike in the US, however, all employees have the right to notice of termination and
the employer must give the appropriate notice or make a payment in lieu of notice
if the employee does not agree to the transfer. Where the employee does accept the
transfer, provincial laws generally provide that continuity of employment applies
in relation to certain statutory rights, such as vacation entitlement, maternity leave
and severance pay. In contrast, Quebec does provide for the automatic transfer of
employees where there is a transfer of a distinct business or enterprise.
The situation is different in respect of unionized businesses, where in all provinces
an existing collective agreement will be binding on the acquiring company following
the transfer of all or part of a business. The union will also retain its bargaining rights
and the acquiring company cannot vary the terms of employment without the
union’s consent.

There is no statutory obligation to notify or consult with employees or their unions
about the transfer of a business. However, the relevant employment contracts and
collective agreements should be checked for contractual requirements.

As stated above, employees in Canada have the right to receive notice of termination
where their employment is terminated. In addition, employees are entitled to notice
of termination where a significant change is made to the terms and conditions of
their employment and such change amounts to a constructive dismissal. In either
case, the employee is obligated to mitigate his or her damages flowing from the
dismissal.
Specific requirements for statutory notice may apply where 50 employees are
dismissed within a short timeframe, commonly referred to as a mass termination.
The applicable employment or labor standards statute should be reviewed to
determine if the mass termination provisions apply. In Ontario, for example,
statutory notice requirements are 8 weeks for 50 to 199 employees, 12 weeks for

200 to 499 employees, and 16 weeks for 500 or more employees. In addition, the
statutory notice period for a mass termination in Ontario cannot begin until the
Ministry of Labour receives a disclosure statement outlining, among other things,
the economic factors responsible for the pending terminations; any alternatives
to termination implemented or discussed with employees or their agent; and any
proposed adjustment measures to aid the affected employees.
Collective agreements should also be reviewed for any applicable consultation
requirements.
As in the US, the employer should use valid and objective selection criteria in making
termination and rehiring decisions. Failing to do so can expose the employer to
discrimination claims based on the prohibited grounds in applicable human rights
legislation. If, for example, the employer intentionally excludes all employees on
maternity leave from the group of employees to be rehired, this action can be the
subject of a claim of improper discrimination on the basis of sex and family status.

Since employees in Canada are not employed “at will,” employers are unable
to impose new terms and conditions on employees without risking a claim by
employees that they have been constructively dismissed (creating liability for
notice of termination or payment in lieu as described above). Strategies for the
implementation of any changes to the terms and conditions of employment of
affected employees should therefore be developed well in advance of such changes
being made and appropriate risk assessments should also be conducted.

The Personal Information Protection and Electronic Documents Act (“PIPEDA”)
generally governs the collection, use, and disclosure of personal information by
private sector organizations in all Canadian provinces except for Alberta, British
Columbia and Quebec (since these provinces have enacted private sector privacy
legislation that has been deemed substantially similar to PIPEDA).
Personal information is generally defined under PIPEDA as all personally identifiable
information about an identifiable individual. Personal information generally does
not include the name, title or business address or telephone number of an employee
of an organization. Note also that employment is a matter of provincial jurisdiction
under Canada’s Constitution and for this reason provincially regulated employers are
not subject to PIPEDA with respect to information about their own employees.
As a result of recent amendments to PIPEDA, organizations are now expressly
permitted to use and disclose individuals’ personal information without their
knowledge or consent where the personal information is necessary to determine
whether to proceed with or complete a business transaction, and certain measures

Section 6
Employment
are taken to protect the information. If the transaction is not completed, all personal
information must be returned or destroyed by the recipient. If the transaction is
completed, the recipient may continue to use the personal information as long
as certain security measures are taken, the personal information is necessary for
carrying on the activity that was the object of the transaction, and the individuals
are notified of the completion of the transaction and the disclosure of their personal
information within a reasonable amount of time afterwards. This exception to the
general consent requirement does not apply where the purpose of the transaction is
to buy, sell, or lease personal information.
In addition to the statutory protections for personal information, common law
recognizes a right to personal privacy, more specifically enforced as a “tort of
intrusion upon seclusion.” In a recent decision, the Ontario Court of Appeal held that
the following elements are required to establish a successful claim:
•
the conduct must be intentional or reckless
•
there must be an “invasion” without lawful jurisdiction of a person’s private
affairs or concerns
•
a reasonable person would consider the event as highly offensive causing
anguish, humiliation or distress
The Court thereby confirmed the status of an intentional breach of privacy as
an actionable claim that may lead to a damage award, in addition to any other
damages, if substantiated by the evidence presented. Organizations should therefore
carefully monitor and address the protection of employee privacy in any collection,
use or distribution of personal information by the organization in the course of post-
acquisition integration actions.
Latin America

In most Latin American jurisdictions, employees transfer automatically in a merger.
This is the case, for instance, in Argentina, Brazil, Chile, Colombia and Venezuela
(though in Venezuela the employees have the right to object to the transfer if
they consider it harmful to their interests). Typically, employees receive a merger
notification letter or employer substitution notice to confirm their transfer to the
surviving entity. Notices in some cases must also be given to several other persons or
entities (for example, the competent Labor Office, the Social Security Administration,
etc.). In Mexico, the transfer of employees will depend on the specifics of the merger.
In an asset sale, how employees transfer depends on the jurisdiction where the
employee is located. Generally speaking, in most Latin American jurisdictions, in
an asset sale, employees transfer either through employer substitution or (where

permissible) termination and rehire. In Mexico, for instance, the employer can
transfer employees through employer substitution (which would require terms
and conditions of employment to remain unchanged) or through termination and
rehire (which would require a payout of any employee rights in connection with
the termination, but would permit engagement on new terms and conditions of
employment). Similar rules apply in Brazil, where employees can be transferred in
an asset deal if the assets sold encompass a business. All terms and conditions of
employment must be maintained. Benefits can change but the economic value
must be maintained. In Chile, the employees will transfer automatically without the
consent of the employees, the labor authority, the union or any other institution.
In Argentina, employees can transfer in an asset sale only with employee consent. No
consent is required for the transfer of employees in a share sale, but harmonization
of salaries and other compensation is required. This cannot be achieved by
terminating employees and rehiring them the next day, as this may be viewed as a
fraudulent maneuver. The employer must therefore either increase levels of salaries/
compensation or dismiss the employees and hire unrelated new employees. In either
case, there is no need for consultation with unions and/or works councils, and no
need to serve prior notice on employees to be transferred.

In most Latin American jurisdictions, corporate restructuring does not trigger any
statutory notice or consultation obligations (unless the restructuring involves
downsizing or reducing existing benefits or conditions, or employees are transferred,
in which case certain notice and/or consultation requirements apply). That said, in
various Latin American jurisdictions, while there is generally no concept of works
councils like in the EU, employers are often subject to industry-wide or regional labor
unions, and the post-acquisition integration may trigger notification or consultation
obligations with the unions. For instance, in Brazil, all employees are represented
by a labor union, and applicable collective agreements should be reviewed for any
obligations triggered in this regard. By way of example, labor union fees have to be
paid to the appropriate labor union, and various benefits are set out in collective
agreements. Thus, it is important to confirm the applicable collective agreements
and their impact on the post-acquisition integration.

Like in the EU, any downsizing in connection with a post-acquisition integration
needs to address the following three key employment law issues:
• consultation and other procedural requirements, restrictions and prohibitions
• selection criteria
• termination payments

Section 6
Employment
As to consultation procedures and procedural requirements, applicable collective

bargaining agreements should be reviewed for any union consultation requirements.
Also, in some jurisdictions, termination agreements or releases need to be signed off
before the labor authorities or unions (for example, in Argentina, Brazil or Mexico).
In certain countries, collective or mass dismissals are prohibited or may be stopped
by the labor authorities (for example, in Venezuela), and thus amicable negotiations
with the unions or employees may be necessary to implement the personnel
reduction exercise. In addition, certain employees are protected against dismissal,
in which case amicable negotiations for the employees to voluntarily resign from
employment may also be required. In Chile, this protection extends to pregnant
women, certain union officials, and employees on sick leave.
In the Latin American jurisdictions, mandatory selection criteria are less widespread
than in the EU jurisdictions, and instead, any objective criteria can be used. That
said, various Latin American jurisdictions protect certain types of employees from
termination. For instance, in Colombia, there are termination protections related to
union membership, collective dismissal, disability, illness and maternity. In Brazil,
pregnant women, union representatives, employees on sick leave, etc. all enjoy job
stability. In Argentina, pregnant women or mothers, as well as recently married
employees, among others, may be entitled to special severance indemnities. As
indicated above, in these cases amicable exit negotiations are recommended.
As to termination payments, in most Latin American jurisdictions, terminations
due to redundancy are treated as “without cause” terminations, often triggering
generous notice and severance requirements. For instance, Mexican employees
terminated due to redundancy are entitled to: (i) three months’ salary; (ii) 20 days’
salary per year of service; and (iii) a seniority premium of 12 days’ salary (capped
at twice the minimum wage) per year of service. Brazilian employees terminated
without cause are entitled to 50% of the funds in their severance fund account
(the “FGTS”), plus a supplemental FGTS payment, among other entitlements. In
Chile, terminations due to a company’s restructuring or downsizing are treated as
dismissals by reason of “company needs.” In these cases, the employer must make a
statutory severance payment (broadly, one month per year of service capped at 12
months’ pay or CLF 90 (approximately USD 5,000)) and either provide the employee
with 30 days’ notice of termination or make a payment in lieu of notice.
Finally, if a company does not anticipate making employees redundant, but instead
wants to otherwise restructure its workforce (for example, through a change in
reporting structures or relocations), it must carefully analyze whether such proposed
restructuring measures constitute changes to terms and conditions of employment
that may not be permissible, or can be deemed as tantamount to a redundancy, thus
triggering the related redundancy obligations.


Harmonization of terms and conditions of employment can be a challenging
topic in many of the Latin American jurisdictions, due to two conflicting concepts:
(i) the requirement to transfer employees on the same terms and conditions of
employment, at least if employees transfer automatically or through employer
substitution in connection with a merger or in an asset sale; and (ii) the equal pay
principle, requiring equal pay for work of equal value.
As to the former, in many Latin American jurisdictions, terms and conditions of
employment cannot be changed to the detriment of the employee, even if the
employee’s consent is obtained. This is the case, for instance, in Argentina, Brazil
and, in some circumstances, Mexico. In Chile, any change to the contract can be
made with the written consent of the employee. Sometimes it may be possible to
circumvent this requirement by transferring employees through termination and
rehire (on new terms), or by paying out partial severance (for example, in exchange
for a salary reduction). In Colombia, parties to the employment contract are free to
agree different terms of compensation provided that legal minimums are respected.
As to the latter, many Latin American jurisdictions have equal pay for work of equal
value requirements. What this can mean in connection with a post-acquisition
integration is that, if one group of employees has beneficial terms (since detrimental
changes cannot be made to employees’ terms and conditions), all employees have
to be provided with the better terms. The simple fact that some employees may
have been acquired through a transaction typically does not constitute sufficient
grounds for unequal pay. In Colombia, the employer will have to amend employment
contracts by mutual consent and structure payments to raise some benefits and
lower others in order to comply with the principle of equal pay for work of equal
value.
However, there may be exceptions to the above principles, and a case-by-case
review of these issues is, as in all the aspects referred to, advisable. For example, in
Venezuela, labor court rulings have allowed certain changes of existing conditions to
the detriment of the employee (provided applicable minimum mandatory benefits
and standards are met) if the changes are justified on the grounds of a force majeure
or a supervening event such as a merger.
Any benefits harmonization in Latin American jurisdictions must be carefully planned
and implemented, and strategies need to be developed to mitigate risk, all to be
analyzed and determined on a case-by-case basis.

In general terms, data privacy in Latin American countries is generally protected by
the Constitution and the laws of each relevant country. Each country has its own
particularities, for example: (i) some countries have regulatory agencies dealing

Section 6
Employment
directly with data protection/privacy, while others do not; and (ii) some jurisdictions
have more protective or developed legislation than others.
As a general matter, employee data privacy issues must be reviewed and adequately
addressed when considering post-acquisition integration issues in Latin America.
Furthermore and subject to the specific characteristics of each country, access to and
use of personal information generally requires prior authorization of the owner of
such information.
3 Asia Pacific

In Asia Pacific, the ability and process to transfer employees will depend on the
jurisdiction of the employer. As a general rule, and unlike many countries in Europe,
there is no concept of “automatic transfer” of employment in Asia Pacific. This
is the case even when the old and new employers are within the same group, or
when the employees are transferred as part of a larger transaction, such as the sale
of a particular business unit. There are limited exceptions to this, including under
Singapore law, but the exceptions will not apply in every case.
Unless one of the limited circumstances of automatic transfer applies, an employer
may not force an employee to change employers without consent. Accordingly,
transfer of employment in Asia Pacific is achieved through a termination and rehire
process.
In some jurisdictions, such as Australia and Hong Kong, employers can avoid making
certain termination payments to transferring employees if the terms of employment
offered by the new owner meet a specified standard.
However, as there are strict restrictions on termination in some jurisdictions (such
as Japan and Indonesia), many employers adopt a “resign and rehire” approach. This
avoids having to justify the dismissals or risking later disputes.

It is possible to terminate a transferring employee’s employment by giving notice (or
making payment in lieu) in almost every jurisdiction in Asia, save for the Philippines
(where payment in lieu of notice is not allowed) and Indonesia (where there are strict
procedures that preclude termination by notice or payment in lieu in most cases). In
other jurisdictions, such as China and Japan, termination by notice is permissible but
is subject to general requirements that the dismissal be justifiable in accordance with
the relevant laws and procedures.

In jurisdictions where termination with notice is allowed, the minimum statutory

notice period can vary from one day to eight weeks. In some jurisdictions, such
as Malaysia and Singapore, the legislation applies only to specified categories of
staff, and the rights of senior employees are governed by the relevant contract of
employment.
Consultation requirements differ between the jurisdictions. Countries such as
Australia, China, Indonesia, Taiwan and Vietnam have local regulations regarding
consultation, whereas countries such as Hong Kong, Malaysia and Singapore do not.
Notwithstanding local legislative requirements, as employee consent is required
for the termination/rehire process, best practice dictates that employees should be
consulted in relation to the transaction/transfer.
In some countries, unions and/or employee representatives must be notified or
consulted prior to termination/transfer.
The level of unionization varies across Asia. Unions are much stronger in Indonesia
than they are in Hong Kong and Singapore, for example. In all countries, if there
is any collective bargaining agreement in place and that agreement requires
union consultation before termination, the requirement will be upheld. In
Australia, common-rule industrial instruments (Awards) also stipulate consultation
requirements for employers and employees who fall within coverage.

The rights of employees who are laid off or made redundant vary significantly across
Asia. Given the disparity in legal systems and employee rights among Asia Pacific
jurisdictions, reducing one’s workforce can be a significant task that should not be
approached lightly. Unlike the US (where the termination process is straightforward
and employment “at will” allows employers to downsize without incurring significant
costs), labor laws and market practice in many Asian countries require employers to
make significant payments and/or comply with strict procedural requirements when
carrying out terminations.
In countries such as Japan, layoffs can be extremely problematic and employers
may be required to prove “just cause” for the termination or make large payouts. In
China, downsizing must meet statutory requirements to be justifiable. Restructuring
in other countries such as Hong Kong and Singapore is relatively straightforward by
comparison.
In a retrenchment/redundancy situation, the laws in most Asia Pacific countries
specify a minimum notice of termination that must be provided to the employee
(or payment in lieu if permissible). In Indonesia, issuing a termination notice can be
regarded as an unlawful act, rendering the termination invalid.

Section 6
Employment
Separate to the notice payment, redundant employees in countries such as

Australia, China, Hong Kong, Indonesia, Philippines, Taiwan, Thailand and Vietnam
are also entitled to receive a statutory redundancy payment, typically based on the
employee’s length of service.
Employers in many countries prefer to adopt the “voluntary redundancy” approach,
meaning the employer solicits resignations from employees. This method of
downsizing is particularly recommended in those jurisdictions where it is otherwise
very difficult to terminate employees, including China, Indonesia and Japan, or where
termination procedures are particularly cumbersome. Employers who are conducting
a multi-jurisdictional exercise may therefore wish to adopt this approach throughout
the region, though care should be taken to ensure the method of soliciting the
resignations does not, in itself, lead to further liabilities.

The new owner may wish to rationalize the terms and conditions of the “old” and
the “new” employees as soon as possible.
While in Australia a new employer may become bound by an automatically transferring
collective bargaining agreement, in most Asian countries there is no legislation which
protects employees’ terms and conditions automatically (as in the EU).
Harmonization of employees’ terms post-transfer will require a variation of the
employment contract for the employees affected and, hence, each employee’s
consent. If an employee does not consent and the employer implements a salary cut
(for example), the affected employees could claim damages for breach of contract.
They will, as a minimum, be entitled to the difference between their old salary
and the new. In some jurisdictions, such as Australia, Hong Kong and Singapore,
affected employees could claim that they have been constructively dismissed as a
consequence of a unilateral variation of their employment terms.

There is no single regime which the countries of the Asia Pacific region are required
to implement. Each jurisdiction has developed its own set of data protection
laws and practices, the composition and strength of which vary significantly. This
variation exists despite the development in 2005 of the APEC Privacy Framework,
which has not been adopted by all APEC member countries.
Organizations doing business in the region must carefully consider, on a case by case
basis, the data protection obligations to which they will be subject. The following is
therefore not intended to be a comprehensive overview but seeks instead to briefly
demonstrate the diverse approaches taken by countries across the region.
South Korea’s privacy laws are similar in structure to those of the European Union

and are arguably the most stringent in Asia Pacific. Apart from a small number of
limited exemptions, personal information can only be collected and processed with
the prior consent of the relevant individual. Additional consents are required from
the data subject where personal information is disclosed to a third party as part of a
business transfer. Data subjects also have extensive rights under South Korean law,
including the right to require that a processor stop further processing of the subject’s
personal information.
In Australia, a business seeking to disclose personal information as part of an asset
sale must ensure that the disclosure relates to the reason the information was
collected and is within the reasonable expectations of the individuals concerned,
or that the business has the prior consent of the relevant individuals for their
information to be disclosed as part of a business sale. These requirements need
not be met if the business transfer results in the personal information being kept
within the business (for example through a share sale). In New Zealand, a vendor is
permitted to disclose personal customer information for due diligence purposes and
to the eventual purchaser when the business is being sold as a going concern.
Japan prohibits the transfer of personal data to a third party without the data
subject’s prior consent. However, where the information is disclosed to a surviving or
newly established company following a merger or sale of a business, the surviving or
newly established company receiving personal data is not considered a “third party.”
In Hong Kong, data cannot be transferred to third parties (including affiliates) for the
purpose of a business transfer unless the data subject was informed on or before the
date of collection that his or her personal data may be transferred for such purpose
and of the classes of persons to whom the data may be transferred. Singaporean law
requires that an entity obtain an individual’s deemed or express consent to transfer
information to third parties (including affiliates).
Other countries in the region have less regulated privacy practices. The Philippines,
for example, permits the transfer of personal information without restriction
(including to overseas recipients), however, the personal information controller
remains responsible for information that may have been transferred to a third party
for processing, whether domestically or internationally. There is no general statutory
law governing data protection and privacy in countries such as Thailand and Vietnam
(although such laws are under consideration as at the date of this publication). In
these jurisdictions, the requirements for a business seeking to disclose personal
information as part of a business transfer may be determined by industry-specific
laws, to the extent that such laws regulate the processing of personal information.
The same is generally true in respect of transactions occurring in the People’s
Republic of China, which is yet to implement a comprehensive data protection law.
However, industry-specific regulations are increasing, and presently cover sectors
such as telecommunications, banking, insurance, real estate brokerage, post and
courier, and health.

Section 6
Employment
Summary of Employment Issues

This summary is based on the following assumptions:
1. Each company is a 100% subsidiary of the same parent company or each other
(subject to any mandatory minority interests).
companies, not a newly incorporated company (save where indicated
otherwise below).
Alternative methods are available in many jurisdictions and situation specific
circumstances may exist. This summary should not be relied on instead of obtaining
specific legal advice.

1 Americas
Country Local integration Does employment transfer If workers representatives/
method — automatically on the same councils exist, is prior
merger or asset terms and conditions? consultation regarding the
sale. transfer required?
Argentina Merger. Yes, if assets and employees No, but written notification
transfer simultaneously, is advisable.
otherwise employee consent
must be obtained.
Asset sale. Yes, if assets and employees No, but written notification
transfer simultaneously, is advisable.
otherwise employee consent
must be obtained.
Brazil Merger. Yes. No.
Asset sale. No, however a transfer No.
on the same terms and
conditions is possible where
the assets sold constitute a
business unit or division of
the selling entity.
Canada Amalgamation. Yes, employees transfer Only if required under
automatically on the same agreement with labor
terms and conditions. unions.
Asset sale. No, Canada is an offer/ Only if required under
acceptance jurisdiction. agreements with labor
In a non-arm’s length unions.
transaction, the transferee
may wish to make an
offer to some or all of the
employees of the transferor.
They may choose to do this
on substantially the same
terms and conditions, which
would reduce the liability of
the transferor; however, they
are not obliged to do so.
Please note that the
Province of Quebec is an
exception to this general
rule as employment
automatically transfers in
that jurisdiction.

Section 6
Employment

Chile Merger. Yes. No, but written notification

is advisable.
Asset sale. Yes (with certain No, but written notification
exceptions). is advisable.
Colombia Merger. Yes. No. Only if required under
agreements with labor
unions.
Asset sale. Yes. No. Only if required under
agreements with labor
unions.
Mexico Merger, where Yes, if employees are No, if employees are
two or more transferred by way of transferred through an
companies merge employer substitution. employer substitution as a
without creating The surviving company consequence of the merger.
a new company. (substitute employer) must
honor all labor conditions Yes, if employees are
and benefits for the transferred through
employer substitution to be termination and rehire.
valid.
Failure by the surviving
company to honor existing
working conditions may give
grounds for the employees
to bring an action against
the employer (in relation to
honoring working conditions
and/or the making of a
severance payment).
If the above mentioned
requirement is not met (nor
the requirement to transfer
assets from the substituted
employer to the substitute
employer), it is advisable to
transfer employees through
termination and rehire. This
requires employee consent.
Asset sale. No. The parties must Yes, consultation is
expressly agree on the required if employees
mechanics for the transfer will be terminated and
of employees (eg, employer then rehired by the buyer
substitution or termination entity. No consultation is
and rehire). required if the employees
are transferred through
employer substitution.


Peru Merger. Yes, transfer of employees Not applicable.

is automatically triggered.
A letter to the employees
regarding the employer
substitution is required.
Asset sale. No, transfer is not Not applicable.
automatically triggered.
Obtaining employee
consent to the transfer is
required.
As employee consent is
required, it is advisable to
transfer employees on the
same terms and conditions.
The transfer of employees
can be achieved by: (i)
termination and rehire; or
(ii) entering into a tripartite
agreement.
United States Merger. Yes, unless the merger Generally no. Only if
results in a change of required under agreements
employer for the affected with labor unions or if
employees. the transaction adversely
impacts covered employees.
If the merger results in a
change to the employer
such as in a forward merger,
then whether employment
transfers automatically
depends on the application
of the successor-in-interest
rules under applicable state
law.
Asset sale. No. Generally no. Only if
required under agreements
with labor unions or if
the transaction adversely
impacts covered employees.

Section 6
Employment

Venezuela Merger. Yes. No, unless the collective

bargaining agreement
expressly provides
otherwise.
Asset sale. Yes. No, unless the collective
bargaining agreement
expressly provides
otherwise.

Australia Merger. No merger procedure is available in Australia. Court-

sanctioned scheme of arrangement rarely used.
Asset sale. No. Employment is Prior consultation may
terminated and new offers be required due to the
must be made by the effect of unfair dismissal
purchaser (usually on the laws or due to the terms
same terms and conditions). of any awards or orders
of industrial tribunals,
registered agreements,
company policies or
contracts of employment.
The requirement for
prior consultation is not
necessarily dependent on
whether unions are active in
the workplace.


China Merger by Yes. Yes, the current employer(s)

absorption must seek the opinions
and merger by of the union and the
setting up a new employees regarding the
company. merger and should listen to
any comments provided,
though need not adhere to
or follow such comments. In
practice, this requirement is
not strictly enforced.
Asset sale. No. Yes, the selling entity must
seek the opinions of the
union and its employees,
and although the seller
should listen to any
comments provided, it does
not need to adhere to or
follow such comments. In
practice, this requirement is
not strictly enforced.
Hong Kong Merger. Debatable due to lack of Workers’ representatives/
reported cases on the issue. councils do not exist in
Hong Kong and there are no
Considering the lack of any statutory requirements to
reported case on this issue, have prior consultation.
it may be prudent to obtain
each employee’s consent by
way of a transfer letter.
Asset sale. No. Existing employment Workers’ representatives/

contracts must be councils do not exist in
terminated and new Hong Kong and there are no
contracts should be entered statutory requirements to
into with the buyer. have prior consultation.

Section 6
Employment

Indonesia Merger. Yes, but employees of By law, employees must be

the disappearing entity notified in writing and are
have the right to refuse to entitled to demand that
transfer to the surviving they be terminated and
entity and to demand to be receive certain statutory
terminated in accordance benefits (which can
with the statutory be substantial). Where
procedure. consultation is provided
for under a recognized
collective bargaining
agreement, the employer is
legally obliged to comply.
In the absence of such
a provision, and in the
interests of maintaining
good industrial relations,
employers should
nonetheless take steps to
seek the views of the trade
union.
Asset sale. No. Employees must either: Individuals’ consents are
(i) resign from the seller required for a “transfer.”
employer and be re-
engaged by the buyer with Where consultation is
accrued entitlements; (ii) provided for under a
be terminated by the seller recognized collective
employer, and thereafter be bargaining agreement,
re-employed by the buyer; the employer is legally
or (iii) agree to transfer with obliged to comply. In the
accrued entitlements based absence of such provision,
on a tripartite agreement. and in the interests of
maintaining good industrial
relations, employers should
nonetheless take steps to
seek the views of the trade
union.


Japan Merger by Yes. No. However, if the

absorption. buyer wants to change
the employees’ working
conditions to their
detriment upon integration,
such a change must be
reasonable unless each of
the employees consents
to it. In practice, sufficient
prior communication
should be made with the
employees in this regard.
Asset sale. No. The employees must No, but individual consent
either: is required for transfer by
consent or resignation and
(i) consent to transfer of rehire.
employment agreement;
or (ii) resign from the seller
employer and be rehired by
the buyer.
Malaysia Merger. No merger procedure N/A.
is available in Malaysia.
Amalgamation under
scheme of arrangement
rarely used.
Asset sale. No. Employees must Where there is provision
either resign or have their under a recognized
employment terminated collective bargaining
by the seller employer, and agreement regarding prior
thereafter be re-employed consultation, the employer
by the buyer. However, is legally obliged to comply.
statutory benefits will apply In the absence of such a
to Malaysian Employment provision, employers should
Act employees (ie, lower nonetheless take steps to
paid employees). seek the views of the trade
union in the interests of
maintaining good industrial
relations.

Section 6
Employment

Philippines Merger. Yes. No prior consultation

required, unless the
employer has agreed to
do so under a collective
bargaining agreement or
another contract.
Asset sale. No. Buyer entity must: (i) No prior consultation
assume existing employment required, unless the
contracts or offer new employer has agreed to
contracts of employment do so under a collective
after selling entity bargaining agreement or
terminates employees and another contract.
pays severance pay; and (ii)
obtain individual consent.
Singapore Amalgamation. Yes. Yes, where employees
are covered under the
Employment Act (ie, those
not employed in managerial
or executive positions), the
transferor must notify the
affected employees and (if
relevant) the trade union(s).
In respect of employees
not covered under the
Employment Act, no prior
consultation regarding the
transfer is required (unless
provided otherwise in a
trade union agreement or
similar document). However,
it may be prudent to notify
employees (and trade
unions, if applicable) within
a reasonable period of time
prior to the effective date
of the amalgamation.


Asset sale. Yes, where covered by the Yes, where employees
Employment Act (ie, those are covered under the
not employed in managerial Employment Act (ie, those
or executive positions). not employed in managerial
Otherwise, terms will not or executive positions).
transfer automatically
and employment must In respect of employees
be terminated and the not covered under the
employee re-employed. Employment Act, no prior
consultation regarding the
transfer is required (unless
provided otherwise in a
trade union agreement or
similar document). However,
it may be prudent to notify
employees (and trade
unions, if applicable) within
a reasonable period of time
prior to the effective date
of the amalgamation.
Taiwan Merger. No. Employment can be Notification only.
terminated. Employees
who transfer will retain
their seniority and will
have pension rights. Any
employees accepting a
transfer are not entitled
to severance. Employees
are deemed to accept the
transfer if they do not
respond within 10 days of
notification.
Statutory No. Employment can be Notification only.
acquisition of terminated. Employees
assets under who transfer will retain
the Enterprises their seniority and will
Merger and have pension rights. Any
Acquisition Law. employees accepting a
transfer are not entitled
to severance. Employees
are deemed to accept the
transfer if they do not
respond within 10 days of
notification.

Section 6
Employment

Asset sale that No. Employment is No prior consultation is

does not meet terminated and new offers required, unless the employer
the criteria of the must be made by the has agreed to do so under
above statutory purchaser. a collective bargaining
acquisition of agreement or another
assets. contract. However, if the
asset sale will lead to the
termination of employment
of a number of employees
and this number exceeds the
threshold stated in the Mass
Redundancy Law, negotiation
meetings with worker
representatives or unions will
be required.
Thailand Amalgamation Yes. However, if the No, unless such requirement is
where two or employee specifically specified within agreements
more companies refuses to be transferred, with them (eg, a collective
are amalgamated then no transfer will occur. bargaining agreement
to create a new with a labor union has this
company. consultation requirement).
Asset sale. No. The employee’s consent No, unless such requirement
is legally required. The is specified within
transfer is generally effected agreements with them
by having all three parties (eg, a collective bargaining
(ie, the selling entity, the agreement with a labor
buyer entity and each of union has this consultation
the employees) execute requirement).
an employment transfer
agreement. The employee’s However, in practice, to
length of service must facilitate obtaining the
continue. The transferee can employees’ consents, it is
offer different employment suggested that the seller
terms and conditions as long and the buyer should
as the employees accept and meet with the employees
agree to the transfer. in advance to explain the
situation, address any
concern the employees
may have and encourage
them to consent to the
employment transfer.


Vietnam Merger (either by Yes. Employees can refuse to No, but consultation is
absorption or by transfer and can terminate required if there is to be any
consolidation). their employment contract. redundancy.
Redundancy is possible
subject to statutory job loss
allowance and authority
notification requirements.
Asset sale. No. Employment is No, but consultation is
terminated and new offers required if there is to be
must be made by the buyer any redundancy. Specifically,
entity. if the employer makes
the employees redundant,
If the employees refuse to it must consult with the
transfer or disagree with corporate trade union; if
the terms and conditions there is no union, then it
offered by the buyer must consult with the upper
entity, they can be made immediate-level trade union
redundant by the seller in (usually the district-level
accordance with the law. trade union) to formulate
a labor usage plan. The
plan must specify the
number of employees to be
retained, re-trained, retired
and terminated, as well as
financial resources for the
plan.
Nevertheless, if the
employees are represented
by a corporate union, it
is recommended that the
employer consult that
union on a voluntary basis
and secure its support to
facilitate the transfer.

Section 6
Employment

Austria Merger. Yes. Yes. Prior notification of the

works council and, upon
request, consultation is
required. Approval is not
required.
Asset sale. Yes. Yes. Prior notification of the
works council and, upon
request, consultation is
required. Approval is not
required.
Azerbaijan Merger. No. Existing employment Generally, yes.
agreements are terminated
and new employment
agreements are concluded
with the surviving entity.
This process requires the
consent of the employees.
Asset sale. No (as above). Generally, yes.


Belgium Merger. Yes, a merger would in Yes, the works council or,
principle qualify as a in the absence of this, the
transfer of an undertaking. Trade Union Delegation, or
in the absence of this, the
Committee for Prevention
and Protection at the Work
Place must be informed and
consulted before the transfer
decision is definitively taken
(ie, before filing the merger
proposal with the clerk’s office
of the commercial court).
Consultations should be
conducted effectively and in
good faith, but the council/
delegation/committee cannot
veto the transfer.
In undertakings where neither
a works council, a Trade Union
Delegation nor a Committee
for Prevention and Protection
at the Work Place has been
established, the relevant
transferring employees must
be informed in advance by the
transferor about the transfer
date, the reasons of the
transfer, the legal, economic
and social consequences, and
any envisaged employment
related measures.
Asset sale. Yes, to the extent that the Yes, the works council or,
asset transfer qualifies as a in the absence of this, the
transfer of an undertaking. Trade Union Delegation, or
in the absence of this, the
In order to qualify as a Committee for Prevention
transfer of an undertaking or and Protection at the Work
division of an undertaking, Place must be informed
the “economic” entity must and consulted before
retain its identity. This implies the transfer decision is
that sufficient components definitively taken.
are transferred to be able
to continue to function Consultations should be
as a division of a business conducted effectively and in
undertaking after the good faith, but the council/
transfer. delegation/committee
cannot veto the transfer.

Section 6
Employment

In undertakings where
neither a works council, a
Trade Union Delegation
nor a Committee for
Prevention and Protection
at the Work Place has been
established, the relevant
transferring employees
must be informed in
advance by the transferor
about the transfer date,
the reasons of the transfer,
the legal, economic and
social consequences, and
any envisaged employment
related measures.
Czech Merger. Yes. Yes. Consultation is
Republic required with the employee
representatives (trade union
or works council) or directly
affected employees (in the
event that there are no
employee representatives).
However, the employee
representatives/employees
cannot veto the transfer.
Asset sale. Yes, as long as the transfer Yes (as above).
meets the test for a labor law
legal succession as defined by
the Labor Code.
Egypt Merger. Yes. No, but prior written
notification is advisable.
Asset sale/asset No. No, but prior written
sale qualifying as notification is advisable.
transfer of a going
concern.
France Simplified merger Yes. Yes. Prior notification of and
between stock consultation with any works
companies or council is required. Prior
limited liability consultation of the Health
companies. and Safety Committee
(CHSCT) may also be
required if the project
has a significant impact
on employees’ health
and safety or working
conditions.


Asset sale Yes. Yes (as above).
qualifying as
“transfer of a If there is a partial sale of a
going concern.” business (ie, when the buyer
only takes over part of the
activity and the employees
but not the entire workforce
of a specific company),
prior authorization of the
local labor inspector is also
required for the transfer of
“protected” employees (such
as works council members).
Germany Merger Yes. No. Prior notification of the
(Verschmelzung). employees is required but
consultation is not necessary.
The works councils need
to receive a (draft) merger
agreement one month in
advance of execution of the
shareholders’ resolutions
approving the merger
agreement.
Asset sale. Yes. No. Prior notification of
both employees and works
councils is required, but no
consultation is required.
Hungary Merger Yes. Prior notification is required.
(amalgamation). The opinion of the works
council (if any operates at the
company) must be sought,
but it is not binding.
If there is a trade union, then
it must be informed about
the employer’s decision to
proceed with the merger.
The trade union may initiate
consultation upon receipt of
that information, in which
case the employer must
consult with the trade union,
but is not required to reach
an agreement with it.

Section 6
Employment

Asset sale. Yes (where the transfer is a Prior notification is required.
labor law legal succession as The opinion of the works
defined by the Labor Code). council (if any operates at the
company) must be sought,
but it is not binding.
If there is a trade union,
then it must be informed
about the employer’s the
decision to proceed with the
sale. The trade union may
initiate consultation upon
receipt of that information,
in which case the employer
must consult with the trade
union, but is not required
to reach an agreement
with it. If there is no union
or council/representative,
the employees must be
consulted.
Italy Merger. Yes. If the merging company has
more than 15 employees, all
the companies participating
in the merger must send a
joint notice of their intention
to merge to their respective
works councils, as well as to
the unions that concluded
the collective agreements
applied by the employers
affected by the transfer
(even in the event that there
are no works councils). The
notice must be sent at least
25 days before any binding
agreement (ie, the merger
deed) is signed.
Within seven days following
receipt of the notice, the
unions may request to enter
into a consultation procedure
but they cannot veto the
transaction once the relevant
waiting period has elapsed.


Asset sale (sale of Yes. If the selling entity has more
business unit). than 15 employees (regardless
of the number of employees
that are being transferred),
the seller and the buyer must
notify their intention to carry
out the sale of the line of
business to their respective
works councils, as well as to
the unions that concluded the
collective agreements applied
by the employers affected by
the transfer (even if there are
no works councils).
The notice must be sent
at least 25 days before the
execution of the business
transfer agreement, or in any
event prior to the signature
of any binding document
relating to the proposed
business transfer.
Kazakhstan Merger. Yes. An employee may No, except where such
refuse to continue requirement is specifically
employment and, if so, their provided for in the collective
employment agreement agreement.
would need to be
terminated.
Asset sale. No. Employee consent is No, unless: (i) specifically
required. If desired, the provided for in a collective
acquiring entity has the bargaining agreement; or (ii)
right not to employ the the transaction also involves a
selling entity’s employees. collective redundancy.
Luxembourg Merger. Yes. Consultation will be required
if there are changes foreseen
to employment. If there are
no workers’ representatives/
councils, written information
should be given to the
employees.
Asset sale qualified Yes. Yes. If there are no workers’
as a “transfer of a representatives/councils,
business” (transfert written information should
d’entreprise). be given to the employees
involved.

Section 6
Employment

Morocco Merger. Yes. Yes. Prior notification and
consultation is recommended.
Asset sale (“sale Yes. Prior notification and
of going concern” consultation is recommended.
(cession de fond
de commerce) or
asset contribution
(apport partiel
d’actif)).
Netherlands Legal merger. Yes. Yes, except in certain
circumstances (for
example, in the event of a
simplified merger without
any operational changes
occurring).
Asset sale. Yes. Yes, except in certain
circumstances.
Poland Merger. Yes. However, an employee Yes. Prior notification and
may terminate his/her consultation is required.
employment agreement on
seven days’ notice within If there are no trade unions or
two months from the date of works councils, the existing
merger. and new employer must
notify employees in writing
within a statutory time limit.
Asset sale. Yes, provided it is a transfer Yes (as above).
of a business as a going
concern. However, an
employee may terminate his/
her employment agreement
on seven days’ notice within
two months from the date of
transfer.
Qatar Merger. Yes, unless the merger results There are currently no labor
in a change of employer for unions in Qatar.
the affected employees.
Asset sale. No. There are currently no labor
unions in Qatar.


Russia Merger. Yes, unless an employee No, unless such a requirement
refuses to continue is specifically provided for
employment by operation in the collective bargaining
of the merger, all agreement.
employment rights and
obligations are transferred If the merger entails staff
from the current employer redundancy, two months’
to the surviving company. written notice must be given
to each employee being
However, employees should made redundant, as well as
be notified of the merger to the primary trade union
to enable them to refuse (if any) and the local state
to continue work because employment authorities (in
of the merger (this right case of mass dismissal, the
is provided by the Russian primary trade union and
Labor Code). employment authorities must
be notified three months in
If an employee refuses advance).
to continue employment,
their employment must
be terminated under
specific statutory grounds
without any severance
compensation.
Asset sale (sale of No. No, unless such a requirement
separate assets is specifically provided for
or sale of an An asset sale does not in the collective bargaining
enterprise). entail automatic transfer of agreement.
employees by operation of
law. Transfer of employees
may be formalized only
by termination and rehire
and, therefore, requires the
employees’ consent.
If an employee objects and
gives no consent to the
transfer to the acquiring
company, he/she remains
employed by the selling
entity and may be further
terminated in compliance
with Russian labor
legislation.
If desired, the acquiring
entity has the right not to
employ the selling entity’s
employees.

Section 6
Employment

Saudi Arabia Merger. Yes. No.
Asset sale. No. Consent is needed. No.
If desired, the acquiring
entity has the right not to
employ the selling entity’s
employees.
South Africa Merger (very Yes. No general consultation
rarely used in requirements under
practice). employment law. May be
required in terms of company
policy, collective agreement,
employment agreement, etc.
However, consultation will be
required if the parties wish to
agree to vary the automatic
consequences under
employment legislation.
There are prior notification
obligations under
competition laws if the
transaction constitutes an
intermediate or large merger.
Asset sale. Yes, if the asset sale No general consultation
constitutes a transfer of a requirements under
business as a going concern. employment law. May be
required in terms of company
If not, transfer can occur by policy, collective agreement,
mutual agreement between employment agreement, etc.
seller, buyer and employees. However, consultation will
necessarily be required if the
parties wish to agree to vary
the automatic consequences
under employment
legislation.
There are prior notification
obligations under
competition law if the
transaction constitutes an
intermediate or large merger.


Spain Merger. Yes. Prior notification is required
at the time the general
meeting approving the
merger is called. If this
meeting is not called,
notification is required 15
days before the approval of
the merger.
If labor measures are going
to be implemented (eg,
collective dismissals or
substantial modification
of the employment
conditions), the company
needs to negotiate with the
employees’ representatives
at least 30 days before the
effective date of the merger.
Asset sale. Yes, provided that a Prior notification is required
“standalone unit” is at least 15 days before the
transferred to the buyer. effective date of the transfer.
If labor measures are going
to be implemented, the
company needs to negotiate
with the employees’
representatives at least 30
days before the effective
date of the asset sale.
Sweden Merger. Yes. However, employees Yes, for both entities.
in the absorbed entity may
decline to transfer. If so,
the employee will remain
with the original employer
but may be exposed to a
redundancy scenario.
Asset sale. Yes. However, employees Yes, for both entities.
may decline to transfer. If
so, the employee will remain
with the original employer
but may be exposed to a
redundancy scenario.

Section 6
Employment

Switzerland Merger. Yes, employment will Prior notification of the
transfer on the same terms representatives/works council
and conditions, but the of the entities is required.
employees have (in theory) If no representative or
the possibility to refuse works council exists, prior
the transfer. They should notification of employees
therefore be informed of must take place.
the merger.
Asset sale. Yes, employment will transfer Yes, prior notification of the
on the same terms and representatives/works council
conditions. of the entities is required. If
no representative or works
council exists and measures
affecting employees
are contemplated then
notification of employees is
required.
Turkey Merger. Yes, provided the In principle, no. If, however,
transferring employees do the employer of the
not object to the transfer transferring employees
of their employment to is party to a collective
the transferee employer. bargaining agreement, such
An objecting employee’s agreement must be reviewed
employment will terminate for any special regulations it
at the end of his/her notice might include.
period. Such objection,
however, does not stop the In any case, it is best practice
merger process. to inform the relevant union
before the merger.
Asset sale. Yes. If the asset transfer In principle, no (as above).
amounts to transfer
of an undertaking or a
part thereof, then the
employees working in the
transferred undertaking
or its relevant part will
transfer automatically to the
transferee employer on the
same terms and conditions of
employment. Employees as
well as the transferor and the
transferee employers do not
have the right to object to
the transfer of employment.


United Merger. No merger procedure N/A.
Kingdom is available in the UK.
of arrangement or
reconstruction is rarely used.
Asset sale. Yes. Yes. Prior notification
is required and if labor
measures are going to be
implemented, consultation
is required.
Ukraine Merger. Yes, the employment Prior consultation is required
agreement will continue if there will be a reduction
(it will not be deemed “a in staff as a result of the
transfer” in the sense of the merger.
Ukrainian labor laws), unless
there is a staff reduction.
Asset sale. No, unless the transfer is a No.
“transfer of integral property
complex” and the asset sale
qualifies as a change of the
owner of the enterprise.
United Arab Merger. Yes, the employees of No.
Emirates the surviving company
automatically transfer on the
same terms and conditions (in
fact they simply continue to
be employed). The employees
of the disappearing company
do not automatically transfer,
they must be transferred by
way of a tripartite agreement
between the old employer,
the new employer and the
employee.
Asset sale. No. Consent and new No.
employment contracts would
be required to be entered
into with employees. These
contracts may stipulate that
seniority shall be maintained
— although there is no legal
requirement to recognize
previous service.

Section 7
Employee Benefits/Equity Awards
Section 7
The term “employee benefits” covers a wide range of benefits which may be
provided to employees, such as retirement benefits, cash bonuses, car entitlements,
equity awards, beneficial loans and healthcare. In certain countries, particularly the
United States, retirement benefits and other so-called welfare plans (for example,
medical, dental, disability insurance, life insurance, etc.) are generally provided by
the employer rather than the State. In jurisdictions where the employer has the
primary responsibility for providing employee benefits, due diligence and financial
analysis are essential to determine the impact of the transaction on liabilities, costs
and cash flow as well as the effect on employee morale. This section focuses on
those benefits that are most directly affected by an acquisition and subsequent
integration, ie, retirement and welfare benefits and equity awards (for example,
employee stock options). A detailed analysis of the employee benefits and employee
equity award issues to be considered in the planning and due diligence stages of the
acquisition is outside the scope of this Handbook.
1 Employee Equity Awards

Equity awards held by employees are usually over shares in the parent company, and
so will be directly affected by an acquisition of that company. To the extent that
awards will remain outstanding after the acquisition, these rights may need to be
altered in some way to reflect the resulting change in ownership. Awards that could
be affected include employee stock options, restricted shares, restricted stock units
and any other share-based awards (even if ultimately settled in cash).
The impact of the acquisition on equity awards should be considered in the
structuring and planning leading up to the acquisition, as briefly commented
on below. Following the acquisition, further work to ensure compliance with all
applicable laws and, to the extent deemed necessary, to integrate these awards with
the acquiring group’s equity plans and benefit plans is required.
1.1 Planning and Due Diligence

Although equity awards should be one of the aspects considered in the structuring
of an acquisition, such awards are rarely a central focus, even though they can have
a significant impact on the transaction if they are widely held by employees of the
target group.
As part of the pre-acquisition due diligence process, the terms on which the awards
were granted and the rules of the equity plan should be considered as these may

contain provisions dealing with a change of control of the company over whose
shares the awards were granted. For example, many US equity plans provide for the
assumption/conversion of awards on a change in control into awards over shares
of the acquiring company without employee consent. However, in the UK, a typical
plan may provide for the exercise of vested options or vesting of shares prior to the
acquisition being completed, with any awards that remain outstanding then lapsing
following completion. A UK tax-favored or a French tax-qualified plan may permit
the exchange of equity awards on a tax-neutral basis, provided certain requirements
and processes are complied with. The exchange of Belgian tax qualified or Israeli
trustee awards, on the other hand, may result in a loss of tax-favored treatment
unless an advance ruling is sought from the tax authorities.
It should be considered whether the equity awards form part of the employee’s
employment terms, rather than an exceptional benefit offered by a third-party
parent company. If they are an employment term, the employee may be entitled to
continue to enjoy certain equity award benefits following the acquisition and the
acquiring company will need to ensure that such benefits are provided.
If any awards converted to rights over the acquiring company’s shares will remain
outstanding following the acquisition, the acquiring company will need to have a
process in place for administering these awards, especially if the terms of the awards
are different from the acquiring company’s existing equity awards. In addition, the
company will need to ensure that any necessary tax and/or compliance filings or
governmental approvals are completed for the awards in all relevant jurisdictions,
given that any assumed/converted awards will be considered as “new” awards in
many countries. This can be an issue especially if awards are held by employees
residing in countries that are new to the acquiring company.
Depending on the structure of the transaction, the acquiring company may assume
the equity plans of the target and rely on the share reserve in the assumed equity
plan to make new grants to target employees. The assumed plan will likely require
registration and potentially shareholder approval by its new sponsor, and the
acquiring company will need to ensure that any necessary tax and/or compliance
filings or governmental approvals are completed before offering equity awards
under the assumed plan.
1.2 Post-Acquisition Steps

As discussed above, consideration should have been given to the treatment of equity
awards prior to the acquisition taking place and various actions should already have
been taken, such as the making of any necessary regulatory filings, and possibly the
obtaining of consents. Depending on the jurisdictions involved in the transaction,
data protection rules may prevent the acquiring company from obtaining detailed
information concerning the target’s outstanding equity awards until after the close
of the transactions. The post-acquisition steps outlined below are mostly aimed at

Section 7
supporting the pre-acquisition work which may already have been completed in
affected jurisdictions, but such work may be delayed until post-close due to privacy
or other considerations.
This list of post-acquisition steps is a general guide to the main issues which may
need to be considered, and the focus and relevance in any particular integration
depends on whether and the extent to which these issues were considered prior to
completion of the acquisition.
•
If existing awards were converted on completion into awards over the
acquiring company’s shares, the company will need to communicate this with
the employees (to the extent this has not already been done) and information
regarding the details of the converted awards (for example, new exercise price,
number of shares subject to the award) will need to be provided to the new
employees.
•
If the awards are not converted, there may be a general employment
obligation on the employer to provide benefits of similar value. This would
involve considering whether the plans already operated by the acquiring
company are sufficient for this purpose, and possibly setting up new plans for
this purpose.
•
A thorough review (to the extent not already done) should be undertaken of all
equity-based plans operated by the new group, including local variations and
standalone plans. It will be necessary to ascertain whether the documentation
being used is sufficiently comprehensive to comply with the requirements of
the various jurisdictions in which the plans operate (by reference to securities,
tax, employment, exchange control and data protection laws) and amend
where appropriate. In addition, the number of shares authorized under each
equity plan should be re-evaluated in light of increased employee numbers.
•
An understanding of how the acquired company structured its equity awards
to accommodate local laws will be important. If the structuring differs from
the acquiring company, two different procedures for complying with local rules
may be necessary.
•
In addition to regulatory filings and governmental approvals which may have
been needed before the acquisition, further filings and approvals may be
needed following completion. The availability of local exemptions should also
be reviewed as the change in corporate structure and size of the local entities
may impact this. For share plans operated in China, a new exchange control
registration for any equity awards is necessary if a target’s employees are
employed by a separate subsidiary, but this may take time as it first requires
a “de-registration” of the subsidiary from an existing approval structure.
Employees should be informed of any filings or approvals that may delay their
ability to benefit from equity awards following the close.

•
The actions required for compliance with legal requirements worldwide, such
as securities laws, data protection, taxation, exchange control and employment
laws, should be ascertained. This should include a summary of any available
exemptions or “safe harbor” provisions under securities laws, and the
conditions which need to be satisfied in order to qualify for them, the various
filing and reporting requirements which are needed on an ongoing basis and
the entity responsible for each. The company should ensure that sufficient
procedures are in place to monitor and maintain compliance and undertake
necessary reporting and filings on a timely basis.
•
If the awards were structured to be tax beneficial, consider whether anything
can be done at this stage to retain the necessary approvals, etc. It should also
be considered whether the time, costs and effort involved in maintaining
such approvals is worthwhile, and whether this is consistent with how the
company decides to structure its equity plans going forward. If the tax-favored
treatment was lost upon the close of the acquisition, then employees should
be informed so they can act prior to the completion of the transaction.
•
The extent to which the equity awards are administered globally or locally
should be determined. The company may also wish to consider whether the
extent and complexities of the equity plans mean that the administration may
need to be outsourced to a third-party provider, or whether additional people
should be given this responsibility internally.
•
Sufficient communication procedures need to be established between the
various entities and functions, such as the stock plan administrators, human
resources and payroll, to ensure that, the appropriate people are aware of
the equity plans and activity within them. For example, to ensure that on an
option exercise, the appropriate taxes are withheld within the appropriate
timeframes, where necessary.
The discussion above focuses on equity awards such as employee stock options
or restricted stock units; a similar review must be conducted for employee stock
purchase plans. For example, US companies offering a global employee stock
purchase plan will need to consider how to integrate employees of the acquired
group into the employee stock purchase plan, including, if necessary, completing
corporate formalities to bring new subsidiaries into the plan. If target employees
will transfer employment from one company group to another as part of the post-
acquisition integration process, that transfer will need to be considered for the
purposes of employee stock purchase plan participation as it may mean employees
are not eligible to continue to participate in the plan.
In addition, a change in the structure of the group may be an opportune time to
reconsider the nature of equity awards offered by the company, subject to any
restraints which may be imposed by employment laws.

Section 7
The company may wish to have a “global” equity plan which is integrated across the
group worldwide or it may prefer that awards are structured at a more regional level,
according to what is appropriate for that section of employees. The extent to which
regional variations are to be permitted or indeed encouraged should be considered.
This may depend, for example, on whether the company wishes to amend plans to
obtain tax relief or to avoid unnecessary regulatory filings. In the UK, France and
Israel, share plans can be amended by way of a sub-plan so that equity awards can
be granted in a tax beneficial manner.
Further, changes in tax or accounting rules might lead to the nature of the awards
being provided as remuneration being reconsidered. Generally, companies seek to
incentivize or reward staff by a combination of cash (by way of bonuses) and share-
based plans. Share-based plans are much more common in the case of companies
whose shares are listed on a stock exchange, due to the lack of marketability of
shares in private companies. Nonetheless, many private companies have established
equity plans and often permit senior managers to acquire shares directly.
Finally, it should be noted that restricted shares have tax disadvantages in some
countries, as employees may be taxed when they first receive the shares and may be
unable to claim the tax back if they forfeit the shares before they vest. As a result,
some companies grant restricted stock units or “RSUs.” RSUs involve a promise to
transfer shares to the employee in the future if the employee remains employed
during the vesting period of the award and generally do not carry voting or dividend
rights. RSUs are usually only taxed if and when the shares are issued at vesting.
2 Retirement Benefits
Retirement benefits for employees may be provided by the State, the employer
or the individual. Employer-provided retirement benefits are usually voluntary
arrangements and are generally structured as defined contribution or defined benefit
plans. In most countries, tax relief is granted to retirement arrangements that meet
the specified requirements of the governing tax authorities.
Under defined contribution plans, the final benefit at retirement is not known.
These plans may be funded by contributions made by the employer, by the
employees or both the employer and the employees. The annual contribution may
either be discretionary or a fixed predictable amount which is then allocated to the
accounts of the participating employees. The ultimate retirement benefit depends
on both the rate of contribution and the investment experience of the amounts
contributed (in other words, the employee bears the risk of loss and enjoys the gain
on investments). In contrast, defined benefit plans provide a guaranteed benefit
at retirement determined by a formula that typically takes into account a specific
percentage of an employee’s compensation or a flat dollar amount multiplied by his/
her years of service with the employer. These plans are typically non-contributory
(ie, the employees do not contribute because the employer is the sole source of the

retirement fund), as in the US, but are contributory in the UK and it is the employer
that bears the risk of investment loss. Hybrid arrangements are also available. Hybrid
arrangements combine the account structure of a defined contribution plan with the
guaranteed benefit of a defined benefit plan. Retirement plans may be unfunded or
pre-funded. In the US, for example, tax-advantaged plans are required to be funded
through a trust or insurance and the funding levels are a key aspect of the pre-
acquisition due diligence.
In order to have a smooth post-acquisition integration, it is essential to identify
the type of retirement benefit plans that will be assumed and terminated in each
jurisdiction. Once the review is complete, the financial, tax, securities, legal and labor
implications of maintaining, modifying or terminating the plans must be considered.
For example, the company should identify which of the retirement programs are tax-
advantaged. For a company whose shares are traded on a US exchange or subject
to the reporting requirements of the US Securities and Exchange Commission, it
is essential to determine whether the retirement plans hold company stock. The
company should also assess whether it will assume funding obligations under each
plan, and whether funding or other liabilities will arise if the retirement plans are
modified or terminated. This is a particular issue in the UK where the pensions
regulator has punitive powers to ensure that defined benefit plans are properly
funded and employers cannot walk away from their liabilities. Specific legal advice
should be sought where there is a defined benefit plan in the UK. Further, the
company should apply its benefits philosophy when evaluating the future of the
acquired plans. For example, will the company strive to impose a standardized global
benefits package or do local considerations (such as being competitive in the local
market) factor into the renewal process?
2.1 Post-Acquisition Steps

Following the acquisition, it is important to understand what retirement benefits
apply to the acquired employees and what obligations the employer has with
respect to maintaining these benefits. The specific legislative, tax, securities, labor
and plan requirements will vary from jurisdiction to jurisdiction. Additionally, if the
retirement plan is funded by a trust, in many countries the plan administrator will
have fiduciary obligations to consider the best interests of the plan participants
when making investment choices and administrative decisions. Further, in efforts
to provide a streamlined process for communicating retirement benefits, electronic
distribution of materials is becoming quite common. However, the use of electronic
communication and enrolment must be assessed under the data privacy and
electronic commerce requirements of each country to avoid an inadvertent violation.

Section 7
Therefore, as part of the post-acquisition integration planning and implementation

process, the acquiring company should:
•
attain a proper understanding of the existing retirement arrangements
•
evaluate any potential restrictions on terminating existing retirement
arrangements (for example, negative tax implications, negotiated benefits,
early termination penalties)
•
identify the service providers for the retirement programs and decide whether
to retain or replace the current vendors
•
review each retirement benefit arrangement to determine whether changes
need to be made and whether such changes would be permitted under local
law (for example, there may be vested rights, tax qualification or labor law
issues)
•
assess and account for any employer funding obligations under the retirement
plans
•
communicate any changes sensitively and clearly with affected employees and
any employee representative bodies, and consult on such changes if required
under local law
•
consider translation into the local language if it is mandatory or recommended
to ensure employees comprehend any changes
•
analyze the requirements of local data privacy laws and electronic delivery
laws and institute compliance procedures
•
establish a calendar of required compliance, reporting and notice obligations
for each jurisdiction
•
review any funding issues for retirement plans and consider whether there is a
need to educate fiduciaries, develop an investment policy, and develop a list of
preferred providers to provide economies of scale
3 Welfare Benefits
In many jurisdictions, welfare benefits (for example, health, disability, life insurance,
etc.) are provided wholly or partially by the State (typically through social
insurance contributions) and these State-provided benefits can be supplemented
by the employer. In these jurisdictions, the acquiring company should assess
any withholding and funding obligations with respect to such benefits. In other
jurisdictions, such as the United States, an employee typically receives his or her
health, life, and disability and severance benefits from the employer pursuant to an
insurance contract between the employer and the benefits provider that may be
subject to constraint with regard to changes. Where collective bargaining units and

works councils are involved, changes may need to be negotiated with or accepted by
the employee representatives.
An acquiring company sometimes continues participation in the target group’s
welfare plans for a transitional period after the acquisition has closed. Such
an arrangement is often put in place to allow time to review and, if necessary,
establish new welfare arrangements in foreign jurisdictions. Any transitional services
arrangements should be reviewed to ensure such an arrangement is permissible
in all jurisdictions. For example, in some countries, while any party may provide
supplemental benefits, only the employer may provide “mandatory benefits.”
Additionally, entering into such transitional services arrangements for welfare
benefits may subject an acquiring company to increased liability with regard to its
pre-existing employees. For example, in jurisdictions with equal pay legislation, the
original employees may have a discrimination claim if better benefits are provided to
the new employees during the transitional period.

Section 8
Compliance and Risk Management
Section 8
1 Introduction
In recent years, there has been an explosion in the number and importance of
“compliance areas” that senior management and legal and compliance departments
within companies must take into account. The level of enforcement and penalties
for non-compliance has significantly increased across areas such as antitrust/
competition law, trade sanctions and anti-bribery and corruption. Non-compliance
also often leads to broader and more damaging practical consequences, such as
costly and time-consuming investigations, harm to relationships with regulators
and third parties, limitations on business activities, and reputational damage. Risk
management and compliance are therefore firmly on the radar of companies and
their boards.
In practice, many violations (and subsequent fines) arise due to the acquisition of a
non-compliant target. Violations of law may not always be flushed out in the due
diligence process, and they may continue post-completion if the relevant conduct
is not identified and corrected. Relevant warranties may not necessarily be included
in the purchase agreement and, even if they are included, may not be effective
and are usually limited in duration. For example, a purchaser of assets, as well as
shares, of a target involved in anti-competitive conduct or trade violations can, in
certain circumstances, be liable for the infringement in some jurisdictions, even if the
purchaser was not itself involved.
In this section, we set out recommended steps for tackling compliance risks in a
post-acquisition context, referring briefly to some of the key risk management issues
in the areas of antitrust/competition, export control and trade sanctions, customs
and anti-bribery and corruption laws.
2 Approach to Addressing Compliance Risks

Regulatory guidance on compliance best practice can be boiled down to five key
principles:
•
Leadership — ie, top-down commitment to compliance from all levels of
management.
•
Risk assessment — ie, a risk-based approach to identify priorities and areas of
focus.
•
Standards and controls — ie, rules and protocols to control behavior.

•
Training and communication — ie, conveying adequate and practical guidance.
• onitoring, auditing and response — ie, ongoing monitoring of the
M
effectiveness of compliance measures themselves, coupled with adequate
response mechanisms.
In applying these compliance best practice principles in a post-integration context,
the following key steps should be taken as soon as possible after closing:
•
Risk assessment: There is an increasing realization by businesses that
regulatory risks can be avoided, or at least minimized, by taking proactive
steps to detect key risk areas and infringements upfront (rather than
developing a reactive approach to compliance issues). Without proper risk
assessment, valuable resources can also be wasted in addressing areas where
the exposure is of lesser magnitude or time critical. It is vital to take steps
in order to assess the target’s approach to compliance generally, identify key
compliance risks, and flush out any infringements. The scope of such a risk
assessment will typically depend on the size of the company, where it operates
(on a global or local basis), and practical realities such as available time and
budget. Key considerations will include the extent of the target’s business in
high-risk locations and sectors, the types of transactions it conducts, and the
counterparties with which it engages.
• Integration of compliance regime: In order to put the merged entity in the
best position to manage compliance risks going forward, it is important to
ensure that the target is covered by an appropriate compliance program. In most
cases, this is best ensured by integrating the target into the merged company’s
compliance regime. This may include applying the acquiring group’s existing
policies and procedures to the target, running training across key risk areas,
implementing the acquiring group’s monitoring, audit and response mechanisms,
and ensuring a top-down commitment to compliance. The extent of integration
required will, of course, depend on what compliance regime the target already
has in place, and how closely connected the activities of the target and the risks
it faces are with those of the acquiring group. Any compliance measures should
be appropriately tailored to the risks faced by the target.
•
Remediation: The risk assessment may flush out evidence of infringements
or at least areas deserving of a more in-depth, targeted audit. Any audits or
investigations should be conducted under legal professional privilege. If any
historic or ongoing infringements are discovered as part of a risk assessment or
audit, immediate steps should be taken to end the relevant conduct. The merged
entity should also consider potential remedial steps, such as disclosure to the
relevant authority/authorities or applying for leniency in the case of a cartel.

Section 8
3 Competition/Antitrust Compliance
3.1 Introduction
In all acquisitions serious consideration should be given to the potential application
of competition law, given that in many jurisdictions competition law breaches by
an acquired target will be attributable to the acquirer even if at the time of the
infringement the entity was not under the acquirer’s ownership or control. Breaches
of competition law in many jurisdictions can lead to sizeable fines, individual criminal
liability, and reputational damage. Follow-on civil damages claims are extremely
commonplace in some jurisdictions (eg, the US) and increasingly common in others,
notably in Europe.
Potential competition law breaches on the part of a target could include the
following:
•
evidence of anti-competitive agreements or practices with competitors, for
example, price-fixing (cartels), market sharing, bid-rigging or the exchange of
competitively sensitive information
•
evidence of anti-competitive restrictions placed on companies in the target’s
supply/distribution chain, for example (in some countries), resale price
maintenance where a distributor’s freedom to determine its resale prices is
restricted
•
abuse of a dominant position (if the target occupies a powerful position on
any market), for example, “predatory” low pricing (designed to eliminate a
competitor from the market); however, it is not a violation of competition law
for a company to merely occupy a dominant position on a market without
carrying out abusive conduct
Legal advice should also be sought if at any point in the future the merged entity is
at risk of abusing a dominant position on a market.
The importance of complying with competition law has been underlined in recent
years by the increasingly aggressive and wide-ranging enforcement approaches of
many regulators, which are imposing rising fines and improving their detection of
infringements.
Ideally, detailed competition due diligence will be conducted at the pre-acquisition
stage. Particularly where this is not the case — and even where such due diligence
has been carried out — as soon as possible after closing the acquirer should conduct
a risk assessment of the newly acquired business and its competition compliance
procedures, in order to pick up any issues that were potentially not identified at
the pre-acquisition due diligence stage and with a view to understanding the
existing compliance culture, identifying key risks and flushing out infringements. The
target should then be integrated into the acquirer’s existing competition policies,

procedures and training. Furthermore, any uncovered violations should be swiftly

investigated, and consideration should be given at an early stage as to whether
voluntary disclosures to the authorities are appropriate.
3.2 Risk Assessment

The first stage of a risk assessment should be to identify all areas in which there
may be exposure to competition law infringements. The following factors in
particular will be worth flagging as potentially exposing an acquirer to liability for
infringements:
•
the target employees lacking awareness and knowledge about competition law
compliance
•
target employees having a lot of contact with competitors, either at industry
events or more generally
•
target employees possessing information about competitors’ prices or business
plans
•
overlap between customers/suppliers of the target and its competitors
•
the existence of a joint venture, collaboration or other partnership agreements
between the target and its competitors
•
the existence of contracts with onerous terms imposed on suppliers/
distributors, for example (in some countries), resale restrictions on distributors
•
agreements containing joint selling or purchasing provisions with competitors
•
agreements containing requirements to share commercially sensitive
confidential information with competitors
•
the post-transaction entity enjoying a large share of any of the markets in
which it operates (broadly speaking, an entity with a market share of less than
25% is unlikely to be at risk of breaching competition law, whereas an entity
with a share of more than 40% is likely to be at far greater risk)
Once all the potential competition law risks have been identified, the next stage
should be to classify and assess the seriousness of the risks. Classification may be
expressed in monetary terms (quantitative) or as “high/medium/low” (qualitative).
Consideration should be given to which target employees are in high risk areas,
for example, those who are likely to have contact with competitors (conversely,
employees in less exposed areas, such as back office functions, can likely be classified
as low risk).

Section 8
3.3 Integration of Compliance Regime

Following any risk assessment, it is essential that the target is integrated into the
acquirer’s competition law policies and procedures. In addition to tailored training,
standards and monitoring, a visible management commitment to competition
compliance is important in instilling a competition compliant culture.
Although any post-acquisition integration must inevitably be tailored according
to the precise circumstances of the target and transaction, the following
implementation steps may be useful:
•
training employees in competition law (desktop training for low risk employees
and more regular face-to-face training for higher risk or more exposed
employees)
•
integrating the target into the acquirer’s existing employee code of conduct
and ethics policy
•
integrating the target into the acquirer’s whistleblowing policy
•
ensuring that target employees log all competitor contacts/notify the company
if they are joining a trade association or attending events where they may
have contact with competitors
Once the target has been integrated into the acquirer’s existing policies and
procedures, the target’s compliance should be monitored on a periodic basis
to ensure that standards are maintained and to minimize the ongoing risk of
infringements. The frequency of such monitoring will depend to a large extent on
the company’s exposure to competition law risks. Some businesses review their
compliance procedures and efforts on an annual basis, while others review more or
less frequently than this.
3.4 Remediation
The risk assessment may uncover areas that are deserving of a more targeted,
in-depth audit. In the event that a risk assessment or audit reveals any potential
infringements of competition law, the acquirer should take immediate action to
cease the infringing conduct (if the conduct is ongoing) and consider remedial steps.
A comprehensive internal investigation should be carried out to determine the cause
of the infringement and assess the acquirer’s exposure. Serious consideration should
be given to whether to instruct external lawyers to oversee the investigation and
prepare relevant materials. This should particularly be the case where the business
of the acquirer or target has an EU dimension (even where the business has EU sales
but no physical EU presence) as communications between a company and its in-
house lawyers are not privileged under EU competition law.
Consideration should also be given as to whether any disclosures of the activities are

required by competition regulators, or whether there would be any merit in making a

voluntary disclosure in order to mitigate the risk of criminal or regulatory liability. For
example, many regulators (including those in the US, EU and the UK) have leniency
programs under which businesses can come forward to report their own involvement
in a cartel. Such disclosure may result in the eventual financial penalty being reduced
or avoided entirely, depending on the extent of the disclosure and the amount
of information on the infringements already known to the authorities. However,
in such cases, substantial fine reductions are only available to the cartel member
that first discloses to the authorities. Therefore, any disclosure should be made as
swiftly as possible to minimize the risk of a competitor being “first in.” Furthermore,
swift disclosure and full cooperation may also lead to fine-reductions in non-cartel
infringement cases.
Appropriate disciplinary measures against employees of the business found to have
been involved in the conduct should also be considered. However, if disclosures are
contemplated, it is strongly recommended to discuss potential disciplinary measures
with the relevant authorities beforehand, to minimize the risks of tipping off
individuals to the existence of the investigation. Regulators are typically extremely
sensitive about maintaining the integrity of their investigations.
4 Bribery Compliance
4.1 Introduction
When making an acquisition, it is important to ensure that the businesses or
companies being acquired comply with bribery and corruption laws and that
any bribery or corruption issues identified in the due diligence process are fully
addressed. Under the bribery laws of some jurisdictions, where a subsidiary of a
parent company engages in corrupt conduct, criminal liability may result not only
for the subsidiary company but also for the parent company. Some jurisdictions
such as the United States also impose “successor liability” on acquirers of businesses
that have engaged in corrupt conduct in the past, even in the case of asset
acquisitions. Ensuring that the companies or businesses acquired are being managed
in accordance with ethical laws should be a key priority in the post-acquisition
integration phase.
An acquirer should carry out a risk assessment of the newly acquired businesses from
a bribery perspective and, ideally, as part of the acquisition due diligence process the
target’s compliance procedures should be examined. Failing this, the review should
happen as soon as possible after closing. If necessary, group-wide codes of ethics or
codes of conduct should be extended to cover the newly acquired business. Where
corruption is uncovered, this should be fully investigated and consideration should
be given as to whether any protective disclosures to enforcement authorities are
required.

Section 8
4.2 Risk Assessment

An important initial step to be taken following the acquisition is to carry out a risk
assessment of the bribery risks faced by the companies or businesses acquired and
integrate such assessment into the assessment of risks across the business of the
enlarged group. Many organizations choose to devise risk matrices by grading their
business lines, counterparties, business partners and joint ventures, as well as third
parties or intermediaries that they use, into “low,” “medium” or “high” risk. Relevant
risk factors in relation to a newly acquired business would include:
•
Country risk — the level of corruption in the country in which the newly
acquired business is located, or in countries in which the newly acquired
business has operations or uses intermediaries.
•
Transaction risk — the level of risk posed by particular transactions in
which the newly acquired business or company is involved in, for example,
transactions which are of particularly high value, transactions linked to a
public authority or transactions involving the use of intermediaries or political
contributions.
•
Partnership risk — risks posed by distributors, agents, joint ventures or other
third parties with whom the newly acquired company does business but has
limited control.

It will be important to ensure that anti-bribery compliance measures are applied
appropriately to all companies or businesses that have joined the corporate group,
as well as to other parties who act on behalf of any such companies or businesses.
A parent company may ultimately be held accountable for the actions of subsidiary
companies as well as agents, distributors, suppliers and other third parties that act
on their behalf. When considering the scope of the compliance program required, it is
important to consider which bribery laws may be applicable to the acquired business
or the enlarged group as a whole as a result of the acquisition. It is important to bear
in mind that laws in some jurisdictions prohibit bribery in a commercial or private
sector context, as well as bribery of public officials.
4.3.1 Appointment of Senior Management Responsible for Compliance
The purchaser will need to ensure that there is senior management commitment
within the newly acquired business to the group’s compliance program, and that
this commitment is communicated both internally and externally through a public
statement of commitment. A senior manager or sub-committee of the board of
a newly acquired company should be appointed with overall responsibility for
implementation of the group’s compliance program within the new business and
reporting on the program to the board.

4.3.2 Policies and Procedures

The enlarged group should ensure that the newly acquired business has clear anti-
bribery policies and procedures in place, including:
•
Code of Ethics/Code of Conduct setting out prohibitions on bribery and other
types of unlawful or unethical conduct.
•
Compliance Manual providing information on the legal requirements imposed
by the group’s anti-bribery procedures and any applicable anti-corruption
laws, in particular the US Foreign Corrupt Practices Act and the UK Bribery Act.
Given the scope of the manual, this would provide more detailed guidance
for employees than the Code of Ethics, in particular, for example, in relation to
gifts and hospitality, facilitation payments, and interacting with government
officials and third parties. The manual should also address political and
charitable donations, in the event that any group company will make such
donations.
•
Escalation processes — for employees to report suspicions either to
management or to confidential “whistleblowing” services (prior to
implementing whistleblowing procedures, legal advice should be obtained in
all relevant jurisdictions).
•
Operational procedures — financial and auditing controls to prevent access
to company accounts by unauthorized personnel, for example, and to detect
unusual payments.
•
Disciplinary procedures — breach of relevant codes of conduct should be a
serious disciplinary matter.
•
Training — procedures should be put in place to train relevant employees and
third parties (this training should be tailored to the recipient’s role).
It may be appropriate to extend group policies to cover newly acquired businesses.
In other cases, it may be appropriate to retain or enhance existing procedures that
already apply to the acquired business. Whether the latter approach is appropriate
may depend, for example, on the nature of the business undertaken by the newly
acquired company and its connection with the existing business of the acquirer’s
group.
4.3.3 Due Diligence and Third-Party Issues
If the newly acquired company or business uses intermediaries or other third
parties, it is important to ensure that proper due diligence is carried out on those
third parties in order to identify the risks associated with such relationships. It may
also be appropriate to carry out due diligence on counterparties such as suppliers
or customers. While counterparties who do not act on an organization’s behalf
will not pose such a high bribery risk as, for example, agents, involvement with

Section 8
counterparties who you know or suspect engage in corrupt or other unlawful

activities may give rise to money laundering as well as bribery issues. It is therefore
advisable to carry out due diligence on such persons, both prior to entering into
relationships with them and on an ongoing basis throughout a relationship (as
circumstances may change over time). As part of that due diligence, the nature of
third parties’ bribery compliance measures should be examined.
For third parties who act on behalf of a newly acquired company, due diligence
should be more stringent and can be tailored further in accordance with the risk
categorization assigned to that third party. Third parties who act on the company’s
behalf should be required contractually to abide by anti-bribery laws. For higher risk
third parties, you should consider including monitoring and audit rights in relation to
those third parties’ books and records. Breach of anti-bribery laws by the third party
should give rise to a right to terminate the contract with the third party. If a third
party has less stringent procedures than those required under applicable laws, you
should consider requiring the third party to comply with aspects of your policies and
procedures when they act on your behalf (for example, in relation to interaction with
government officials, agents, or with regard to gifts and hospitality). Contractual
provisions with such third parties should require the third party to undertake to
comply with your policies when acting on your behalf.
4.3.4 Effective Implementation and Training
The compliance program will be effective only if it is properly implemented, with
responsibility for key functions assigned to competent individuals (for example,
internal audit), and if employees and other parties are properly trained and made
aware of their responsibilities. Ideally, suitable management personnel at different
levels of the organization should be charged with acting as compliance “champions”
to assist with any cultural change towards compliance.
Training will be an important part of ensuring effective implementation. The nature
of the new business’s existing training programs, if any, should be evaluated.
The acquirer may then take the approach of providing high-level training for all
employees (for example, through an online training tool), and providing enhanced
training to senior management and higher risk third parties/intermediaries (such as
those operating in higher risk jurisdictions). Records should be kept of training that
is carried out (online training tools should be able to record the date on which an
employee completed training and whether the employee passed any relevant tests
set as part of the training). For senior managers, a member of the legal department
or external adviser could record the fact that the training took place and, for high
risk agents, it would be advisable to take minutes of the training session. The
challenge with training is to avoid a “tick the box” approach, hence the importance
of education and implementation through, for example, the use of “champions”
within the organization.

4.3.5 Monitoring and Review

Existing internal controls relating, for example, to financial monitoring and auditing
should be of a nature and robustness that can effectively identify irregular payments
or potential weaknesses in internal controls from an anti-bribery perspective.
Mechanisms should be in place for the reporting of irregularities to the board, audit
committee or equivalent body.
Anti-bribery procedures should be subject to ongoing review and, where failures
or difficulties are identified, these should be reported to the person with overall
responsibility for the program, and up to the audit committee, board or equivalent
body if appropriate. Reports on the effectiveness of policies and procedures should,
in our view, be prepared at least annually (for example, as part of the internal audit).
4.4 Remediation
Where historic corrupt conduct is uncovered, the acquirer should take steps to
address the misconduct. This should involve investigating the matters fully (in a
way which ensures that legal privilege is protected, by ensuring that investigation
reports, for example, are prepared by internal or external lawyers). Consideration
should be given as to whether any disclosures of the activities are required by
law enforcement or government bodies, or whether there would be any merit in
making a voluntary disclosure of the historic misconduct in order to mitigate the
risk of criminal or regulatory liability. Appropriate disciplinary measures against
employees of the business found to have been involved in the conduct should also
be considered.
5 Export Controls and Trade Sanctions
5.1 Introduction
It is important to consider, as part of a post-acquisition integration, the application
of export controls and trade sanctions, in particular with a view to minimizing
risk related to past or continued breaches. Violations of export control and trade
sanctions legislation can attract significant criminal and civil penalties in a broad
range of jurisdictions worldwide, and can cause damaging practical consequences,
such as harm to relationships with banks and other key counterparties, inability to
obtain export or sanctions licenses, and even the threat of the company itself being
blacklisted under sanctions rules. In a share purchase, liability for past violations of
export controls and trade sanctions will typically transfer with the target. Moreover,
in certain jurisdictions, liabilities for past violations can also transfer with the
acquisition of assets (this is the case under US law).
Broadly speaking, export controls relate to the “what” and the “what for,” ie,
controls on the export of specified items (for example, military or dual-use (meaning

Section 8
items which can be used in military and civilian applications) goods, software or
technology), and on the export of any items that may be put to a specified sensitive
end-use (for example, a military or weapon of mass destruction end-use). An export
may be either a tangible or intangible transfer of such a controlled item from one
jurisdiction to another. However, in certain circumstances, export control legislation
can also apply to transfers within a country, for example, under US export control
legislation, a deemed export may occur if a transfer is made within a country to a
person of a certain nationality.
Sanctions generally relate to the “where” and the “who,” ie, dealings with certain
sanctioned countries (for example, an embargo on trading military or other specified
items with a certain country) or dealings with certain persons (for example, a
prohibition on financial or other dealings with certain designated or “blacklisted”
parties). Sanctions commonly reflect international and/or national security concerns,
and are typically strictly enforced by the authorities.
5.2 Risk Assessment

Pre-acquisition due diligence may not uncover all breaches of export controls and
trade sanctions. Thus, upon acquisition, a thorough risk assessment is recommended,
including:
•
A review of the target’s product portfolio, the licenses it holds, the sectors in
which it operates, the countries and parties with which it does business, and
any past instances of non-compliance, in order to determine risk areas from
both an export controls and trade sanctions perspective.
•
A comprehensive audit of the target’s compliance processes and procedures in
this area.
5.2.1 Export Controls
It is recommended that a risk assessment cover the following:
•
A review of the target’s product portfolio and screening against relevant
international and national lists of controlled items. Particular caution should be
exercised when dealing with military goods. Where there is doubt, clarification
of whether an item is controlled may be sought from some national
authorities.
•
A review of the export control licenses held by the target, to determine
whether appropriate licenses are held. Any licenses required should be
identified and obtained as swiftly as possible, with the exports of controlled
items blocked until the necessary licenses are obtained. In many jurisdictions,
licenses may not transfer automatically as part of an asset deal, or licenses may
contain change of control provisions triggered by a share sale.

•
Consideration of the extra-territorial application of certain export control
legislation; most notably, US export controls can have broad extra-territorial
application, for example, US export controls can apply to US persons outside the
US, and to re-exports of items of US origin and foreign origin items with more
than de minimis US control (ie, exports from and to countries outside of the US).
•
Consideration of the target’s involvement in brokering transfers of controlled
items between third countries, as a company’s involvement may be subject to
brokering controls.
5.2.2 Sanctions
It is recommended that a risk assessment cover the following:
•
A review of countries to/from which the target transfers items, both directly
and indirectly, to determine whether any sanctions restrictions may be
applicable. Consideration of the extent of US nexus to the target is also
important, given the breadth and aggressive enforcement of US sanctions
(for example, US incorporated entities, US citizens or permanent resident alien
staff, use of US origin or content items and US banks/dollars).
•
A thorough screening of the target’s business partners as against all relevant
national and international lists of designated persons is essential, including the
screening of related parties such as directors.
•
Consideration of the extra-territorial application of trade restrictions, in
particular US sanctions, such as US restrictions on dealings with Cuba currently
apply extra-territorially to entities owned or controlled by US persons.

A thorough review of the target’s compliance processes and procedures should be
conducted, in order to bring these in line with those of the existing business and to
ensure compliance with the relevant legislation going forward. Among other things,
the following key elements to a business’s compliance processes and procedures
should be considered:
•
Culture of compliance, with commitment from top level management down:
this commitment should be impressed upon employees of the target business
being acquired.
•
Clear allocation of responsibility within the business for compliance with
export controls and trade sanctions: the appointment of an officer responsible
for compliance within the target business might be considered here.
•
Clear compliance policies and procedures: these may need to be tailored to apply
to the target business and the export controls and sanctions risks it faces.

Section 8
•
Training and raising the awareness of issues: staff transferred with the target
should be appropriately trained and given clear information on existing
compliance processes and procedures.
•
Regular internal audits: the target business should be added to the internal
audit cycle.
5.4 Remediation
In addition to conducting audits or investigations into specific risk areas or
transactions under cover of legal privilege, and immediately halting any non-
compliant conduct, consideration should also be given as to whether to disclose any
infringements to relevant export controls or sanctions regulators. This step can have
clear benefits, but must be considered carefully on a case by case basis. Swift and
comprehensive disclosure may have the effect of mitigating any potential penalties
for which the acquirer is liable for, and demonstrate a strong culture of compliance
to the authorities. Indeed, disclosure is an increasing expectation of certain
authorities. Such a course of action may also enable the acquirer to retain greater
control over the process. However, any disclosure should be full and frank, with
companies avoiding rushing in with incomplete or inaccurate information. Disclosure
will also not be appropriate in all circumstances and to all regulators.
6 Customs Issues
6.1 Introduction
The acquisition of any business, or assets from a business, which moves products
across international borders will require some consideration of the import
implications of the transaction. For example, acquiring a business which imports
goods into the European Union (either for direct sale to a third party or to another
company within the same group) will require the purchaser to assess:
•
the previous customs compliance of that business pre-acquisition
•
customs treatment going forward, both from a pure compliance perspective
and also from a revenue stream viewpoint
Many, although not all, of the issues discussed below relate primarily to the share
acquisition of a business. Acquisition of assets by a purchaser tends to cause fewer
concerns from an import perspective, simply because assets themselves do not tend
to have outstanding customs liabilities or risk compliance issues going forward.
However, there are other considerations which should be taken into account from an
import perspective on an asset integration.

Most importantly, if the purchaser wishes to move the acquired assets across
borders, this will give rise to customs implications. Movement of high-value assets
may expose the purchaser to significant duty costs (as well as other expenses such
as transport costs). The purchaser may therefore wish to consider the need to move
the assets, or impose conditions upon the seller regarding the liabilities which arise
from the asset movement.
6.2 Risk Assessment

A share acquisition of a business will broadly entail the purchaser assuming the
liabilities of that business. This includes any issues arising from poor customs
compliance pre-acquisition. Following the acquisition of a business which imports
goods, best practice would therefore be to conduct a thorough risk assessment of
the acquired business’s customs records and relationships with external stakeholders
(such as customs authorities, freight forwarders and customs brokers) in order to pick
up issues not identified during the pre-acquisition due diligence process.
If the business has made errors in its customs declarations (for example, by
incorrectly classifying goods when they are imported), this may lead to duty
consequences for the business which are likely to be assumed by the purchaser on
acquisition. Customs authorities can, in general, go back a number of years to reclaim
unpaid duty (in the EU, Member State authorities can recover duties and penalties
over a three year period), which can lead to very significant liabilities.
There are numerous advantages to performing a customs risk assessment on
acquisition:
•
The purchaser remains in control of the process and can ascertain liabilities, if
they exist, independently of the customs authorities.
•
In most jurisdictions, if duty has been overpaid, the importer will be able to
claim this back from the customs authorities. As such, a customs audit not only
gives peace of mind but may also lead to significant windfalls for the acquiring
company.
•
In many jurisdictions, an importing business which discovers errors can make
voluntary disclosures to the customs authorities (see below). Again, this has a
number of advantages as the importer retains some control over the process,
develops a reputation as a compliant company and (perhaps most importantly)
may avoid or reduce any penalties which customs authorities can impose for
such violations.

Section 8

Following the acquisition of a business which imports goods, and following any risk
assessment, there are a number of actions which the purchaser may wish to take to
ensure that the acquired business is properly integrated from a customs perspective:
•
It is imperative that the newly acquired business, if it imports products
which are similar to those of the purchaser, applies customs procedures in a
consistent manner with the rest of the purchaser’s business. As an example, if
the purchaser imports bolts and the acquired business imports bolts, but the
businesses classify their bolts under different headings with different tariff
duty rates, customs authorities will naturally want to ensure that this different
treatment is justified. If the products are very similar, this will act as a red flag
to the authorities.
•
The newly acquired business may have import licenses or permits which have
behavioral conditions attached, and which will need to be respected by the
purchaser going forward. For example, the EU’s Authorised Economic Operator
(AEO) program and the US’s Customs-Trade Partnership Against Terrorism
(C-TPAT) program, which both allow an importer to take advantage of certain
import incentives as a result of the supply chain security demonstrated by the
business, require the importer to maintain certain levels of security and can be
lost if these levels are not respected post-acquisition. The target may also have
rulings (such as binding tariff information rulings for particular products) which
may remain binding post-acquisition and which will need to be complied with.
•
The purchaser may wish to standardize the acquired business by incorporating
it into its own customs arrangements. A particular focus, and an area in
which the purchaser may be able to significantly cut costs, is the relationship
between the acquired business and its agents. Putting in place arrangements
with freight forwarders, customs brokers and other agents on a company-wide
basis, as opposed to ad hoc arrangements as and when imports arise, allows
the business to negotiate from a far stronger position, as well as defining the
terms of the relationship up front. Purchasers will also want to look at issues
such as the origin and valuation of particular products to assess whether there
are any standard procedures which could result in a reduction of duty liabilities.
6.4 Remediation
As with risk assessments in the other compliance areas discussed earlier in this
section, a customs risk assessment may flush out areas deserving of a more in-
depth, targeted audit (for example errors in customs declarations). In the event that
a customs risk assessment or audit uncovers any historic or ongoing examples of
non-compliance, the violation should be immediately remedied to ensure compliance
in future. In addition, serious consideration should be given as to whether to

voluntarily disclose the violation to the authorities. As noted above, such a course
of conduct has a number of potential advantages in that the importer can retain
a greater degree of control over the process, develop a reputation as a compliant
company and possibly avoid or reduce any penalties for which it would otherwise be
liable.

Section 9
Cross-Border Mergers in the EU
Section 9
1 Corporate Aspects of Cross-Border Mergers
1.1 Background and Benefits

The cross-border merger procedure is an increasingly popular tool for transferring
businesses between Member States of the European Economic Area (“EEA”), ie (as
at publication), the 28 countries of the EU plus Iceland, Liechtenstein and Norway.
It offers a simplified approach to cross-border integrations and, by enabling the
transfer of a business on a true merger basis, is particularly effective in the area of
corporate reorganizations.
The legal framework for cross-border mergers is set out in the Cross-Border
Mergers Directive (2005/56/EC) (the “Directive”). It is important to bear in mind that
although the Directive provides a framework within which cross-border mergers
are implemented, the process for effecting a cross-border merger is not identical in
each EEA country, as each country has its own regulations setting out the procedure
for merging companies incorporated in that jurisdiction. This means in practice that
there are local differences in process, for example, in relation to time periods for
filing documents and the length of time it will take to implement the merger.
The key effect of a cross-border merger is that all assets and liabilities of a transferor
(or “disappearing”) company (including employees) are transferred automatically
to the transferee (or “surviving”) company. This automatic transfer means that
counterparty consent to the movement of contracts to the transferee is not
required (unless a particular contract stipulates otherwise). This may be a particularly
helpful benefit where the business involves a large number of counterparties or a
particularly high volume of contracts. Transferors should bear in mind, however, that
it is not possible to choose which assets and liabilities are to transfer. Accordingly,
any items not intended to be held by the transferee will need to be transferred
elsewhere in advance of the cross-border merger.
A further effect of a cross-border merger is that any transferor companies will
cease to exist without needing to be put into liquidation. Consequently, there
will be no need to appoint a liquidator, or to take any other steps that would
normally be required in relation to the dissolution of a company. This aspect of
the process may offer the merging companies certain time and cost savings when
compared to a “traditional” integration. When considering a cross-border merger
to implement a dissolution, however, consideration should be given to whether a
simplified dissolution procedure exists in the jurisdiction concerned. In many cases,

this procedure will be simpler and less expensive to implement than a cross-border
merger, and can offer all of the same benefits. However, where the transferor
company has business operations in its country of domicile prior to the merger, it is
likely that steps will need to be taken to ensure that the business and all of its assets
are registered and operated as a branch of the surviving company upon the effective
date of the merger, and so these steps should also be considered as part of the
planning process.
1.2 Types of Cross-Border Merger

Three types of merger are permitted under the Directive:
•
Merger by absorption: one or more transferor companies, upon being
dissolved without going into liquidation, transfer all their assets and liabilities
to an existing transferee company in another EEA Member State in exchange
for the issue to the members of the transferor company of shares or other
securities representing the capital of the transferor company and, if applicable,
a cash payment.
• erger by absorption of a wholly owned subsidiary: a wholly owned
M
subsidiary, on being dissolved without going into liquidation, transfers all of
its assets and liabilities to its parent company in a different EEA Member State.
This tends to be the simplest and most common approach as no consideration
is required. In some jurisdictions, it is possible to use this simplified merger
approach to implement a downstream (or “reverse” merger of a parent into
its subsidiary) as well as an upstream merger (of subsidiary into parent, as
described).
•
Merger by formation of a new company: two or more transferor companies
(at least two of which must be governed by the law of different EEA Member
States), on being dissolved without going into liquidation, transfer all of their
assets and liabilities to a newly formed special purpose company, in exchange
for the issue to their members of shares or other securities representing the
capital of the new company and, if applicable, a cash payment.
1.3 Application of Cross-Border Merger: Branch Structures

One of the most obvious, and perhaps most useful, applications of the cross-
border merger is to transform a parent/foreign subsidiary company structure into a
branch structure where a company has a business presence in a foreign jurisdiction
without having a subsidiary company. Prior to the introduction of the cross-border
merger by way of the Directive, the main way to achieve this structure was through
implementing a series of asset transfers followed by liquidations. Unsurprisingly,
given the expense and the involvement of creditors in local liquidation processes,
having to effect multiple liquidations did not tend to be popular and the

Section 9
introduction of the cross-border merger regime therefore provided an attractive

alternative.
While asset transfers can generally be implemented more quickly than cross-border
mergers, these have a number of disadvantages, including the need to potentially
seek the consent to the transfer of contracts from the contract counterparties in
addition to notifying them of the change via merger. This can be a time-consuming
process and can also bring with it an element of risk, as counterparties may take
the opportunity to object to the transfer or to try to renegotiate the terms of the
relationship. The cross-border merger removes this additional step, as contractual
relationships generally transfer by operation of law, so do not need to be addressed
on an individual basis. The cross-border merger may also have material tax
advantages over an asset transfer.
A branch structure has a number of key advantages over a parent/subsidiary
structure, which fall into four main categories: operating efficiencies, management
structure, tax/accounting and regulation.
• Operating efficiencies: a branch structure enables certain functions to be
centralized in shared service centers or centers of excellence. Rather than
having, for example, local human resources teams in each jurisdiction, a central
human resources team with responsibility for the region can be created. This
leads not only to cost savings, but also to a more effective business function, in
that the increased transparency that this model brings promotes a more cross-
border approach and wider strategy. In a similar vein, having more centralized
back-office functions means that efforts (and costs) are not duplicated in
each jurisdiction. Centralized functions should further mean that decisions
can be made more quickly as this should cut down the need to obtain input
from a disparate group of people across various different countries. Improved
cash flow is another obvious advantage to a branch structure as cash can be
repatriated to the head office easily, effectively and tax free.
•
Management structure: a reduction in the number of legal entities means a
corresponding reduction in the number of boards of directors and, in some
cases, of local managers. From a compliance/governance perspective, this
can significantly increase efficiency and will promote “regional thinking” and
faster decision making from a management perspective. The streamlined
management structure also promotes external, ie, customer, focus. In parent/
subsidiary structures, local management is often focused on the results of
its own legal entity, sometimes to the detriment of the regional business
as a whole. This can be exacerbated where such management’s reward
package is based on the performance of the local entity. By contrast, a branch
structure promotes a more customer-facing, regional view, and can focus local
management’s mind on regional revenue generation and profitability, rather
than solely on local profitability.

•
Tax and accounting: for groups that have significant intra-group service flows,
the adoption of a branch structure can, at a stroke, eliminate a large amount
of VAT compliance. From an accounting perspective, centralized accounting
means that management has “real time” access to financial information for the
region and is not reliant on the efficiency of local reporting flows. Where the
head office entity is in a jurisdiction with an exemption for branch profits, the
main tax disadvantage to a branch structure, ie, “top-up tax” in the head office
jurisdiction, is eliminated.
•
Regulation: for groups in regulated industries, the branch structure provides
additional advantages. One of these is that the group has to maintain only
one single pool of capital that can be accessed across the region. Another
advantage is that the group can “passport” into the branch jurisdictions, thus
maintaining a single regulatory relationship and aligning itself with a single set
of regulatory rules, rather than having to comply with different rules in each
subsidiary’s jurisdiction.
1.4 Other Applications of Cross-Border Mergers

A cross-border merger can be an efficient way to effect a migration of a company
from one EEA jurisdiction to another, in some cases simply to move the hub of the
European operations to a more operationally relevant or commercially favorable
jurisdiction or, in others, to facilitate onward migration to a non-EEA jurisdiction.
This can be particularly desirable where the companies involved own subsidiaries in
jurisdictions that impose gains taxation on an indirect transfer of shares (for example
India). In such cases, effecting the indirect transfer by way of merger often opens up
an exemption that is not available on an intra-group sale. It seems likely that the use
of the cross-border merger to effect migration will further attract increasing levels
of attention in the context of the UK’s departure from the European Union/EEA.
While at the time of writing the full legal details of the exit are unknown, groups of
companies with significant UK operations may well be evaluating whether it would
be beneficial to migrate away from (or into, depending on the context) a UK holding
company structure and the cross-border merger mechanism could be the most
efficient way to achieve the new target structure.
In addition to using the cross-border merger to move companies between countries
to achieve longer term business objectives, the cross-border merger can also be an
efficient tool, as compared to liquidators, in the context of legal entity rationalization
projects where it is necessary to decrease the number of companies within a group,
enabling multiple EEA entities to be merged and dissolved at once without going
into liquidation. A cost-benefit analysis should be undertaken to determine the
best method of integration which takes into consideration alternative methods of
integration, such as the simplified dissolution procedure.

Section 9
1.5 Procedure for Cross-Border Merger

Although the detailed requirements for cross-border mergers vary by jurisdiction,
certain key steps that must be followed are set out in the Directive.
In order to obtain the necessary pre-merger certificate from the competent
authority within the relevant jurisdiction, the Directive stipulates that each of the
merging companies must produce common draft terms of cross-border merger
including prescribed details, such as the form, name and registered office of the
merging companies, and the applicable share exchange ratio. The management of
each merging company must also draw up a report intended for the members of
the company to cover the implications of the cross-border merger for members,
creditors and employees. A report from an independent expert may also need to
be commissioned to determine the appropriate share exchange ratio to be set in
consideration for the merger. Once the required pre-merger documents have been
prepared, a general meeting of each of the merging companies will usually need to
be convened to approve the cross-border merger, after which application can be
made for the pre-merger certificate.
Following the issuance of the pre-merger certificate, each merging company must,
within six months, submit this certificate along with the approved common draft
terms of cross-border merger to the competent authority in its jurisdiction, to
enable the authority to scrutinize the legality of the cross-border merger, determine
that arrangements for employee participation have been put in place, and approve
completion of the merger. As part of the approval process, a date will be set upon
which the cross-border merger will become effective. Upon the merger becoming
effective, the commercial registry of the merged company must notify the
commercial registries in each other relevant jurisdiction of the merger so that the
companies that have ceased to exist can be removed from the local registers.
1.6 Timetable for Cross-Border Merger

The estimated timetable for implementing a cross-border merger is four to six
months. It may be possible to implement a cross-border merger more quickly than
this, for example, in Denmark or in the Netherlands (provided there are no employee
participation complications) it may be possible to complete the process in two to
three months. However, for overall planning purposes it is recommended to allow
six to eight months. Where employee participation rights exist, it is possible that
negotiations may extend the time required to around 12 months (or more).

2 Employment Aspects of Cross-Border Mergers

A particular requirement of the Directive is that any “employee participation”
rights that exist prior to the cross-border merger must be protected in the merged
entity, even where the merged entity is located in a jurisdiction that does not
offer such rights (for example, the UK). The Directive imposes a “highest common
denominator” approach, meaning that the surviving company will have to introduce
participation rights which are at least as favorable as currently apply to employees
(unless otherwise agreed with the employee representatives). This requirement
places an additional burden on employers, over and above the need to comply
with any information and consultation procedures set down in the ARD and local
implementing legislation in relation to a change in employer.
As gaining approval for the merger will be conditional on settling any employee
participation arrangements, and the process of negotiating and determining the
details of these can be a contentious and time-consuming process, it is crucial to
consider the implications of these provisions at an early stage when considering the
viability of and planning a cross-border merger.
“Employee participation” is widely defined under the Directive to ensure that it
captures the different forms of participation throughout the EEA. Generally, this
concept could be defined as “a system which gives employees a statutory or
contractual right to play a role in the management of a company.” This could consist
of employees having representation on the board or on a “supervisory” board of a
company, allowing employees to observe board meetings and request information,
but not to make decisions in respect of the company. Statutory employee
participation rights exist in a number of EU Member States, including Germany,
Austria, Denmark, the Netherlands and Spain, and employers and employees can also
create arrangements voluntarily.
Where employee participation rights exist, the merging companies have two options:
either to agree to be subject to standard rules on employee participation, setting out
the minimum requirements for participation rights, without prior negotiation with
the employee representatives; or to set up a Special Negotiation Body with a view
to agreeing arrangements with employees. If no agreement is reached by the end
of a six-month negotiating window (which can be extended to 12 months), different
jurisdictions provide for different solutions to resolving this issue.

Section 9
3 Tax Issues on Implementing a Cross-Border Merger
3.1 Introduction
The tax issues relevant to cross-border mergers are very similar to the issues that
need to be considered in any post-acquisition integration. In particular, the three
main questions to address in planning a cross-border merger are:
•
can the merger be implemented without triggering taxes in the jurisdiction of
both the merging and the surviving entity?
•
will existing tax assets of the merging and surviving entity survive the merger?
•
how can the merger implementation best be prepared for from a tax and
accounting perspective?
The answers to these questions tend to depend, to a significant extent, on the
nature of the entities being merged and the post-merger business structure. Cross-
border mergers of holding companies, for example, tend to create different tax issues
to mergers of operating companies.
In addition to the above considerations, the cross-border element of the merger
often gives rise to tax issues that would not arise on a purely domestic merger. For
example, the issue of merger retroactivity from a tax and accounting perspective,
usually a very easy determination to make in a purely domestic context, involves a
number of additional considerations in the cross-border context.
Finally, where cross-border mergers are being used as a tool to transform a parent
subsidiary structure into a head office/branch structure, VAT and transfer pricing
considerations will come into play, and will need to be considered at an early stage
of the process.
3.2 Cross-Border Mergers: Tax Treatment of the Merger

In the absence of any relief or exemption, a cross-border merger will generally be
viewed for tax purposes as a disposal of assets by the merging entity and as a
disposal of shares in the merging entity by the surviving entity, often for deemed
market value consideration. The effect of this is that the merger can trigger tax
liabilities in both jurisdictions on any latent gains in the business assets of the
merging entity or the shares in the merging entity.
Where the cross-border merger is used to create a head office/branch structure, relief
from tax will usually be available in both jurisdictions. However, the availability of
relief is often subject to conditions designed to ensure that the merger technique
cannot be used for tax avoidance purposes and does not reduce the domestic tax base
in the merging company’s jurisdiction. The specific conditions vary from country to
country, but generally tend to include one or more of the following requirements:

•
A fairly universal requirement is that all of the assets transferred pursuant to
the merger remain allocated to the branch of the surviving company in the
jurisdiction of the merging company that results from the elimination of its
corporate identity. As all European jurisdictions exercise taxing rights over
businesses carried on by non-resident companies through a local permanent
establishment, this ensures that the merged assets remain in the local tax
“net” of the merging company’s jurisdiction. This requirement can give
rise to issues where the legal entity reorganization coincides with a supply
chain restructuring where functions and/or risks are being moved between
companies in the wider group.
•
Some jurisdictions (for example, the UK) do not give tax relief where the
merger does not have a “business purpose” or where the merger is being
implemented for tax avoidance purposes.
•
Some jurisdictions (for example, France) require a pre-merger ruling to
be obtained from the local tax authorities for tax relief to apply. Other
jurisdictions (for example, Germany) require a simple application for the carried
asset values of the merged entity to be continued by the branch.
The requirement for the ongoing allocation of assets of the merging entity to the
continuing branch also raises problems for assets such as IP, since these are normally
allocated to the head office. To the extent that the effect of the merger is that IP
assets leave the domestic tax net, a tax realization event can arise that may not
benefit from an exemption regime.
Where the cross-border merger involves holding companies, the relief described
above will generally be unavailable, for the simple reason that, following the
merger, shares in subsidiaries formerly held by the merging company may no longer
be within the merging jurisdiction’s tax “net.” In this scenario, however, as many
European jurisdictions now have participation exemption regimes that apply to share
disposals, these transactions will often be exempt from tax in practice. Care should
be taken, though, to ensure that the conditions for the participation exemption
apply (for example, required holding periods).
3.3 Transfer of Tax Attributes Pursuant to a Cross-Border Merger

Where the merging and/or surviving entity in a cross-border merger has tax assets
in the form of carried forward losses, the impact of the merger on those tax assets
should be considered early in the planning stage.
In many jurisdictions, tax losses in the surviving entity are unaffected by the merger.
Issues can arise where the effect of the merger is that significant changes are made
to the nature or scale of the business carried on by the surviving entity. In the UK,
for example, if the merger resulted in changes to the business of the surviving entity
that were significant enough to be regarded as a different “trade” to that carried

Section 9
on prior to the merger, NOLs incurred prior to the merger may be restricted or even
extinguished.
Where the cross-border merger results in a head office/branch structure, NOLs in
the merging entity will often survive the merger and can be utilized in the future
to shelter taxable profits attributable to the branch, although this is not always the
case (NOLs do not survive a merger in Germany, but they do in Austria). In some
jurisdictions (for example, France), it is necessary to obtain a tax ruling prior to
the merger confirming this treatment. Moreover, many jurisdictions place similar
restrictions on the use of NOLs to those described above in the context of the
surviving company, for example, where the effect of the merger is that significant
changes to the business will take place. Where the merger does not involve
companies under direct common control, or the merger pre-positioning steps involve
the transfer of shares in one or both of the companies involved in the merger, this
can also have implications for the survival of NOLs. In Germany, a direct or indirect
change of shareholding of 25% or more can result in restrictions on NOL carry
forward, with full NOL cancellation possible in the case of a change of control (ie,
50% or more).
Where losses will not survive a merger (because, for example, an anti-avoidance
rule applies or the losses are in a merging holding company), opportunities for
cross-border loss relief claims should always be considered. Recent European case
law has had the effect that a number of European jurisdictions now allow domestic
companies to utilize NOLs incurred by overseas subsidiaries in certain limited
circumstances. A common requirement of these rules is that the NOLs are “terminal”
(ie, cannot be carried forward and utilized in the jurisdiction of residence of the
company that incurred the NOLs). Where the loss-making company is disappearing
in a cross-border merger, this may result in NOLs becoming “terminal,” thus opening
up the possibility of a cross-border claim.
In those countries where the legal validity of a merger depends on its recording in
a register, its timing may be difficult to control. For this reason, the merger terms
can include wording which would arrange for assets and liabilities of the merging
company to be held for the account of the surviving company as from a specific
date (following the date of the merger terms) chosen by the parties for financial
accounting purposes. As from this date, the assets and liabilities could be shown in
the books of the surviving company even if the merger was not yet legally effective,
but giving parties control over when the merger takes practical effect, including
when the IT systems are combined.

3.4 Retroactive Effect of Cross-Border Mergers

Retroactivity is a normal feature of domestic merger laws in most European
jurisdictions. These allow mergers to be treated as having effect, for (income) tax
and accounting purposes, at some earlier date (normally the beginning of the fiscal
year of the merging entities) than the date on which the merger becomes legally
effective. The principal benefit of this is compliance-related: only one set of financial
statements needs to be prepared and one tax return filed for the year in which the
merger takes place. Current filings, such as VAT and wage tax and social security
withholding filings, have to be continued by the merged company until the legal
effective date of the merger. The same applies to financial accounting obligations.
As most jurisdictions that have domestic merger laws have based their cross-border
merger legislation on those laws, their legislation often makes provision for cross-
border mergers to be retroactive for tax and/or accounting purposes. In the cross-
border context, however, retroactivity can give rise to issues that do not arise in
a purely domestic merger, and the decision as to whether to make a cross-border
merger retroactive is often not as straightforward as the same decision in the
domestic context. In a domestic merger, for example, merging the accounting results
of the merging and surviving entities is relatively straightforward. This may be less
easy in a cross-border merger, however, because of differences in local generally
accepted accounting practice in the two jurisdictions involved. In addition, some
jurisdictions (for example, the UK) do not have domestic merger statutes and so do
not have established domestic practice in relation to merger retroactivity that can
easily be applied in the cross-border context. Although these issues can often be
overcome, consideration should be given to the cost/benefit analysis of opting for
retroactivity.
3.5 Transfer Pricing Issues

Where cross-border mergers are being implemented to change a parent/subsidiary
structure into a head office/branch structure, the reorganization will represent a
complete change in the transfer pricing landscape for the group. Instead of ensuring
that intercompany transactions are priced on an arm’s length basis, the key issue
following the reorganization will be to ensure that the correct amount of profit
is allocated to each branch for local tax purposes. Making sure that management
and finance functions fully understand the detailed implications of this change is
an important and sometimes challenging part of the integration process. Transfer
pricing analysis should be started early — as is generally the case with transfer
pricing issues, contemporaneous documentation and support represents the most
effective (and frequently legally required) means of defending the transfer pricing
model going forward.

Section 9
3.6 VAT Issues

The primary objective from an indirect tax perspective is to identify the VAT
consequences of the merger in each jurisdiction and then to seek to mitigate or
reduce any absolute, cash flow or administrative costs for the merging entity, the
surviving entity and for third-party trading partners.
From a practical perspective, the key areas of focus are the following:
•
A local transfer mechanism should be designed enabling VAT on the
reorganization to be mitigated and, if not possible, to identify the conditions
that must be met in order for the surviving entity to fully recover any VAT
charged. The underlying principle is that the merged company will continue to
be accountable for VAT through the legal effective date of the merger and the
surviving company thereafter.
•
In order to cause minimum disruption to trading, the surviving entity will need
to register for VAT in all EU Member States where it will operate after the
legal effective date of the merger with sufficient lead time for the business
to adapt its internal accounting systems (which in turn needs to be properly
prepared through prior harmonization of the respective chart of accounts),
timely notify third parties of changes to the supply chain and ensure that
any local applications or filing requirements for specialized VAT accounting
arrangements are approved.
•
In order to create minimum disruption for third parties, consider approaching
the local tax authorities to investigate the possibility (where legally
permissible) of transferring the merging entity’s VAT registration number to the
surviving entity. If accepted, this means that internal systems/documentation
do not need to be amended and third-party customers/suppliers do not need
to amend their systems. Attention should also be paid to inventory of the
merged company where this is maintained in third countries
•
If separate VAT registration is required, identify which jurisdictions allow
the surviving entity to register for VAT in advance of the reorganization and
those where registration is not possible until the surviving entity is “active”
from a trading perspective. Where early registration is possible, although
advantageous from a VAT perspective, it should be considered whether this
may create a requirement to report transactions from a direct tax perspective
(which would not necessarily be advantageous).
•
Many jurisdictions do not permit a company to hold a local VAT number
(enabling it to trade) once it has merged or ceased to operate. As a result, it
is important to ensure that the merging entity recovers any input VAT it is
entitled to claim in the final VAT return submitted for the pre-merger period.
Although, in principle, the effect of the merger should be that the surviving

company “inherits” the VAT position of the merged entity, in practice many VAT
authorities will not permit the surviving entity to recover VAT invoiced to the
merging entity prior to the merger, or allow the merging entity to submit a
VAT refund claim post-merger to recover this VAT. If accounts payable are not
properly managed, this can result in an actual cost to the group.
•
Following the merger, the surviving entity may operate, for VAT purposes, in
new jurisdictions. Care should be taken to ensure that third-party costs are
invoiced to the correct “establishment” for VAT purposes going forward (where
they may simply have been invoiced to the head office pre-merger).

Section 10
Summary of Local Integration Methods
Section 10
When one multinational company acquires another company and its international
subsidiaries, a key aspect of the integration of the two multinational groups is
to consolidate duplicate operating companies so that there is only one operating
company in each country. The following summary of integration methods describes
the simplest, most appropriate methods based on the following assumptions:
1. Each company is a 100% subsidiary of the same parent company or the other
operating company (subject to any mandatory minority shareholding interests).
companies, not a newly incorporated company.
3. Each company is profitable at the time of the integration.
4. The timetable for the integration relates to the period after due diligence has
been completed and financial statements prepared.
5. Asset sale refers to all of the business of the dissolving company.
Alternative methods are available in many jurisdictions and this summary should not
be relied on instead of obtaining specific legal advice.

1 Americas
1.1 Local integration method Merger in accordance with Asset sale in accordance
Law No. 19,550 as amended. with Bulk Transfer Law No.
11,867 (or without following
this procedure, which is not
mandatory).
1.2 Preferred pre-integration No preference. No preference.
structure, for example:
parent/subsidiary or
brother/sister?
1.3 Do all rights and obligations Yes. No.
transfer by operation of
law?
1.4 What financial statements Audited special merger None, however the business
or independent valuations and consolidated financial should be transferred for
are required? statements are required for fair market value.
each company. All statements
Are there audit requirements must be drawn up to the
for both companies? same date, which must not
be earlier than three months
from the date of execution
of the preliminary merger
agreement.
1.5 Legal Effective Date of Date of registration with Date of execution (unless
Integration? the Public Registry of the agreement provides
Commerce. otherwise).
1.6 Can merger/asset sale be Yes, but only from the date Yes, but only from the date
retrospectively effective on which the surviving on which the buyer entity
from tax and accounting company took over and took over and commenced
perspectives? commenced the activities the activities previously
previously conducted by conducted by the selling
If yes, what is deadline for the disappearing company entity (the “Merger Date”)
filing merger application? (the “Merger Date”) and and only if the asset sale
only if the merger is is fully compliant with the
fully compliant with the requirements applicable to
requirements applicable a tax-free reorganization.
to tax-free reorganization. The deadline for filing
The deadline for filing notification of the tax-free
notification of the tax-free reorganization with the Tax
reorganization with the Tax Authority is 180 days from
Authority is 180 days from the Merger Date.
the Merger Date.

Section 10

1.7 Is a creditor’s notice period Yes. There are mandatory Yes, there are mandatory
required? If yes, are there waiting periods of 15 days waiting periods if the
mandatory waiting periods? (which can be extended to transfer of assets is
20 days if there is creditor performed in accordance
opposition). with Bulk Transfer Law No.
11,867.
1.8 How long will integration This varies on a case-by- This varies on a case-by-
take from finalization of case basis. case basis.
plan and all information
provided (including financial
statements)?

1.1 Local integration method Merger. Asset sale.
brother/sister?
law?
1.4 What financial statements Unaudited balance sheet of None.
or independent valuations the merged company drawn
are required? up to a date no more than
30 days before the date of
Are there audit requirements the merger. An appraisal
for both companies? report of the net worth of
the merged company is also
required.
1.5 Legal Effective Date of Date of execution. Normally date of
Integration? completion of the asset
transfer.
perspectives?
If yes, what is deadline for
filing merger application?
1.7 Is a creditor’s notice period No. However any creditor No. However any creditor
required? prejudiced by the merger prejudiced by the sale may
may request annulment of request its annulment, if
If yes, are there mandatory the merger in court within the seller is insolvent or has
waiting periods? 60 days if the disappearing became insolvent as a result
company is a corporation, or of the sale.
90 days if the disappearing
company is a limited liability
company.


1.8 How long will integration One to two months. One to two months.
take from finalization of
statements)?
CANADA Merger Asset Sale

1.1 Local integration method Amalgamation (the Asset sale.
companies amalgamating
must be in the same
jurisdiction).
brother/sister?
law?
1.4 What financial statements None are required; however, None, business should be
or independent valuations note that the amalgamating transferred for fair market
are required? entities will need to meet a value.
solvency test that is set out
Are there audit requirements by the relevant corporate
for both companies? statute.
1.5 Legal Effective Date of Date specified on certificate Normally date of
Integration? of amalgamation; may not completion of asset transfer.
be retroactive but may be
specified in advance.
1.6 Can merger/asset sale be No retrospective effect. May have retrospective
retrospectively effective financial effect, but tax
from tax and accounting implications should be
perspectives? considered
1.7 Is a creditor’s notice period None, however in most None.
required? Canadian jurisdictions, the
amalgamation requires an
If yes, are there mandatory affirmative statement by
waiting periods? a director or officer of the
amalgamating corporations
confirming solvency and
that no creditors will be
prejudiced as a result of the
amalgamation.

Section 10
CANADA Merger Asset Sale

1.8 How long will integration Three weeks. If one Three weeks, subject to the
take from finalization of company needs to be time it takes to assemble
plan and all information transferred and continued the information regarding
provided (including financial into the jurisdiction of the the assets and liabilities to
statements)? other amalgamating entity, be transferred.
prior to amalgamation, this
could add up to four weeks
to the timetable (or more
if Ontario tax filings not
current).
Non-Statutory
CHILE Merger (1) Asset Sale
Merger
1.1 Local integration Merger (1): a new Non-statutory Asset sale.
method entity is created, merger: a stock
both entities are corporation is
dissolved. dissolved when all
of its shares are fully
Merger (2): one owned by a single
of the entities is entity for at least 10
absorbed and the consecutive days.
other survives.
1.2 Preferred pre- Depends on the Depends on the No preference.
integration structure, circumstances. circumstances.
for example: parent/
subsidiary or
brother/sister?
1.3 Do all rights and Yes. Yes. No.
obligations transfer
by operation of law?
1.4 What financial Both companies No legal requirement None, however the
statements or must prepare an for independent business should be
independent audited balance valuation of the transferred for fair
valuations are sheet. assets. market value.
required?
Are there audit
requirements for
both companies?
1.5 Legal Effective Date Date of execution. Date of execution. Normally date of
of Integration completion of the
asset transfer.

Non-Statutory
CHILE Merger (1) Asset Sale
Merger
1.6 Can merger/ Yes, from an No, the board Yes, with limited
asset sale be accounting/financial of directors or effects depending
retrospectively perspective but the manager of on the circumstances
effective from tax not from a tax the disappearing (eg, this may only
and accounting perspective. company must be within the same
perspectives? submit a declaration fiscal year).
of dissolution within
If yes, what is 30 days.
deadline for filing
merger application?
1.7 Is a creditor’s notice No notice or waiting No notice or waiting No notice or waiting
period required? periods. periods. periods.
If yes, are there
mandatory waiting
periods?
1.8 How long will Three weeks. Three weeks. Three weeks.
integration take
from finalization
of plan and all
information provided
(including financial
statements)?

Section 10
COLOMBIA Merger Asset Sale Bulk Asset Sale

1.1 Local integration Merger. Asset sale of Bulk assets sale
method separate assets. (not requiring
details of individual
elements making
up commercial
establishment).
1.2 Preferred pre- No preference. No preference. No preference.
integration structure,
for example: parent/
subsidiary or
brother/sister?
1.3 Do all rights and As a general rule, yes. No, however, if a The buyer entity
obligations transfer However, real estate transfer of assets and selling entity
by operation of law? and goods subject occurs and the are jointly and
to public registration labor contracts of severally liable for all
require separate employees related obligations existing
formalization and with the business at time of bulk
registration to be being transferred sale for a period of
effective against are not terminated two months from
third parties. prior to the closing registration of bulk
of the transaction, sale. After this time,
then an employer the seller is released
substitution will take from responsibility.
place by operation
of law.
1.4 What financial Audited financial The price of The selling entity
statements or statements required the assets to be must provide a
independent for both companies. transferred cannot certified balance
valuations are Also required: be below 75% of fair sheet with a
required? market value. In the description of
• p
rojection of case of shares the the transferring
Are there audit consolidated price should not be liabilities.
requirements for financial below 115% of the
both companies? statements once intrinsic value. If the
merger completed transfer is between
related parties
• d
escription of located abroad, the
valuation of assets transfer should be
and liabilities of carried out on an
the companies arm’s length basis.
• e xplanation of the
share exchange
method


1.5 Legal Effective Date Date of registration Date of execution. Date of registration
of Integration in Mercantile in Mercantile
Registry/ Registry.
formalization of all
documents required
by Colombian law
in a public deed (or
private document if
the absorbing entity
is a simplified share
company (SAS) and
there is no transfer
of real estate
property).
asset sale be
retrospectively
effective from tax
and accounting
perspectives?
If yes, what is
deadline for filing
merger application?
1.7 Is a creditor’s notice Yes. None. No, but two-month
period required? period from date of
Within a In the case of registration of bulk
If yes, are there 30-business- a simplified transfer for creditor
mandatory waiting day period, the corporation, if oppositions and
periods? company’s creditors the assets to release of selling
will be entitled to be transferred entity’s liability.
demand sufficient represent 50% or
and satisfactory more of the equity
guarantees for the of the company
payment of their on the date of the
credits. transfer, the transfer
qualifies as a global
disposal of assets,
which requires the
authorization of
the shareholders’
assembly and
registration at
the Chamber of
Commerce. A
registration tax
of 0.7% over the
value of the assets
must be paid to
the Chamber of
Commerce.

Section 10

1.8 How long will Where the Can be immediate. Two to three
integration take companies fall months.
from finalization within certain
of plan and all circumstances (for
information provided example, they have
(including financial pension liabilities or
statements)? financial difficulties),
the merger must
be approved by
the Companies
Superintendence
and will take
approximately six
months. Otherwise
approximately three
months.

1.1 Local integration method Merger, where two or more Asset sale.
companies merge without

structure, for example: parent/
subsidiary or brother/sister?
1.3 Do all rights and obligations Yes, however, when real No.
transfer by operation of estate is transferred through
law? a merger, the transfer must
be formalized in a separate
public instrument and
registered with the Public
Registry of Property.


1.4 What financial statements All companies participating None, although an
or independent valuations in a merger are required to independent valuation is
are required? publish a balance sheet one advisable.
month prior to the merger.
Are there audit requirements
for both companies? Also required:
• a n obligations payment
program must be disclosed
by the disappearing
company
• a Tax Audit Report for the

disappearing company (for
the year of the merger) and
the surviving company (for
the year of the merger and
one year following)
A valuation is also
recommended.
1.5 Legal Effective Date of Either: (i) following a Normally date of completion
Integration three-month waiting period of the asset transfer as
(traditional merger) from set out in the transfer
the registration date; or (ii) agreement.
on the date of registration
of the merger agreement
at the Public Registry of
Commerce if creditors
have granted their consent
or their credit has been
guaranteed (fast-track
merger).
For tax purposes, the merger
will be effective on the
date set out in the merger
resolutions.
perspectives?

Section 10

1.7 Is a creditor’s notice period Waiting period of three No.
required? months during which creditors
of the merging companies can
If yes, are there mandatory oppose the merger unless:
waiting periods?
• p
ayment of all creditors is
agreed with creditors
• a
n amount is deposited in
escrow for the benefit of
creditors
• t he creditors expressly
consent to the merger,
in which case there is no
waiting period.
1.8 How long will integration Four to six months. One month (or immediately
take from finalization of if no real estate is to be
plan and all information transferred).
statements)?

1.1 Local integration method Two types of merger: (i) two Asset sale.
or more companies merge
to form a new company and
they cease to exist; or (ii)
one company absorbs one
or more other companies,
which cease to exist.
1.2 Preferred pre-integration Parent/subsidiary (assuming No preference.
structure, for example: parent/ the parent is the survivor).
1.3 Do all rights and obligations Yes, from the effective date. As a general rule, rights
transfer by operation of With respect to rights that are and obligations are not
law? registered in public records transferred by operation of
(registered real estate or law. Exceptionally, as soon as
vehicles), the transfer will be the regulation of a very recent
automatically registered when legislative decree is approved,
the merger is filed to the the municipal license for the
public records for registration. operation of administrative
Registrations, licenses, permits offices, industrial plant and
and authorizations are also similar will be automatically
automatically transferred transferred if the asset sale
either to the absorbing involves the transfer of an
company or the new company ongoing business and there is
as a result of the merger. no variation regarding the line
of business and the authorized
use of the premises.


1.4 What financial statements The companies participating None.
or independent valuations in a merger need to approve
are required? the following balance sheets
within 30 days after the
Are there audit requirements effective date: (i) in the case
for both companies? of the merged companies,
a balance sheet dated the
day before the effective
date; and (ii) in the case of
the surviving company, an
opening balance sheet dated
the day after the effective
date.
Neither independent
valuations nor external
auditing are mandatory.
1.5 Legal Effective Date of Date agreed by the parties In the case of real estate, the
Integration in the merger agreements transfer of property occurs
(which can be immediate if as soon as the respective
desired by the parties). contract is signed. In the
case of movables, the
transfer of property requires
the physical transfer of the
respective goods to the new
owner.
Registration in the public
registry, when applicable, is
also required but only for
transparency.
1.6 Can merger/asset sale be No. The companies No.
retrospectively effective participating in the merger
from tax and accounting need to notify the tax
perspectives? authority about the Legal
Effective Date of Integration
If yes, what is deadline for within 10 days after the
filing merger application? same occurred for such date
to be acknowledged for tax
purposes.
1.7 Is a creditor’s notice period Yes. Creditors may oppose Not required.
required? the merger within 30
calendar days following
If yes, are there mandatory the completion of three
waiting periods? publications (with five days
interval between each) of
the merger in the official
gazette.

Section 10

1.8 How long will integration Two to three months to Depends on complexity
take from finalization of complete the process, of the sale (registration
plan and all information including the creditor’s period for the transfer of
provided (including financial opposition period and real estate, the transfer
statements)? registration in the Public of licenses and other
Registry. conditions).
UNITED STATES (DELAWARE) Merger Asset Sale

1.2 Preferred pre-integration Parent/subsidiary. No preference.
transfer by operation of law?
1.4 What financial statements or None. None.

independent valuations are
required?
for both companies?
1.5 Legal Effective Date of Date of filing with secretary Normally date of completion
Integration of state unless a later date is of the asset transfer.
specified in agreement and
plan of merger.
perspectives?
1.7 Is a creditor’s notice period No. No. However, creditors’
required? consent may be required to
transfer obligations.
If yes, are there mandatory
waiting periods?
1.8 How long will integration May be effected May be effected
take from finalization of immediately. immediately.
statements)?


1.1 Local integration method Merger. Bulk asset sale under
Articles 151 and 152 of
the Venezuelan Code of
Commerce (“Code”).
1.2 Preferred pre-integration For tax reasons, a brother/ No preference.
structure, for example: sister merger is preferable as
parent/subsidiary or brother/ this does not trigger income
sister? tax liability.
A parent subsidiary may be
treated as a liquidation for
tax purposes and trigger
income tax liability for the
surviving entity.
1.3 Do all rights and obligations Yes. Generally, no. However, if
transfer by operation of the selling entity and buyer
law? entity do not comply with
the requirement prescribed
by the Code to publish three
notices in national newspapers
at 10-day intervals, the buyer
will be jointly and severally
liable with the seller for the
seller’s obligations. Under the
Venezuelan Organic Tax Code,
the buyer is also jointly liable
for the seller’s tax obligations
for a period of one year from
the date of the notice to the
tax authorities regarding the
sale.
1.4 What financial statements No external audited financial None, however the business
or independent valuations statements are required. should be transferred at fair
are required? However, balance sheets market value to avoid any gift
(pre- and post-merger) of tax liability.
Are there audit requirements the companies involved in
for both companies? the merger are required to
be prepared and must be
approved by the respective
share/quota holders.
1.5 Legal Effective Date of Three months after the Date of publication of the
Integration publication of the share/ bulk sale after registration at
quotaholders’ meeting the competent Commercial
resolving upon the merger. Registry Office of the bulk
This term can be waived sale agreement.
provided there is evidence
of the payment of all debts
and if all creditors have
consented to the merger.

Section 10

1.6 Can merger/asset sale be Not from a tax perspective. Not from a tax perspective.
perspectives?
1.7 Is a creditor’s notice period Not statutorily, however the Not mandatory, however it is
required? merger will only be effective advisable to comply with the
following a three-month requirement prescribed by the
If yes, are there mandatory waiting period. Code to publish three notices
waiting periods? in national newspapers at 10-
day intervals in order to avoid
the buyer becoming joint and
severally liable with the seller.
1.8 How long will integration Normally between Normally between one and
take from finalization of three months to one three months depending on
plan and all information year depending on the the complexity of the plan.
provided (including financial complexity of the plan.
statements)?

AUSTRALIA Merger Asset Sale

1.1 Local integration method No merger procedure Asset sale.
is available in Australia.
arrangement rarely used.
1.2 Preferred pre-integration N/A. No preference.
parent/subsidiary or brother/
sister?
1.3 Do all rights and obligations N/A. No.
1.4 What financial statements or N/A. No formal valuation or audit
independent valuations are requirements.
required?
for both companies?
1.5 Legal Effective Date of N/A. Normally date of completion
Integration of the asset transfer as
described in the transfer
agreement.
perspectives?
1.7 Is a creditor’s notice period N/A. No.
required?
waiting periods?
1.8 How long will integration N/A. Approximately three months
take from finalization of depending upon the specific
plan and all information assets to be transferred
provided (including financial and whether government
statements)? approvals are required.

Section 10
CHINA Merger Asset Sale

1.1 Local integration method Merger by absorption. Asset sale.
sister?
1.3 Do all rights and obligations Yes, unless otherwise agreed No.
transfer by operation of law? contractually.
1.4 What financial statements or Merging companies must An independent valuation is
independent valuations are prepare balance sheets and often prepared to determine
required? property lists. No audit the transaction price for tax
requirements for filings and accounting purposes
Are there audit requirements with the Administration for however this is not a statutory
for both companies? Industry and Commerce. requirement.
For filings with other
government authorities (eg, No formal audit requirements.
tax authorities), it should be
confirmed at the locality.
1.5 Legal Effective Date of Date of issue of a revised/ Normally date of completion
Integration new business license reflecting of the asset transfer.
completion of the merger.
perspectives?
1.7 Is a creditor’s notice period Yes. Creditor notice must No.
required? be given by means of: (i)
notices to individual creditors
If yes, are there mandatory within 10 days of the merger
waiting periods? agreement; and (ii) public
announcement within 30 days
of the merger agreement.
The creditors may require the
company to pay off its debts
or provide corresponding
guarantees within 30 days of
receipt of the notice, or if the
creditors fail to receive the
notice, within 45 days of the
public announcement.

CHINA Merger Asset Sale

1.8 How long will integration Normally 12 months from Two months if the buyer
take from finalization of initial filing of the merger needs to expand its business
plan and all information application. A further one to scope to cover new business
provided (including financial four months will be required activities.
statements)? if anti-monopoly filing and
review is required. Three to four months if a new
company is to be established
as the buyer.
Additional two to three
months to set up branches for
the asset sale, if required.
Additional one to four months
if anti-monopoly filing and
review is required.
Additional time will also be
required if there are industry-
specific requirements.

1.1 Local integration method Court-free amalgamation Asset sale.
available for merging sister
companies (horizontal
amalgamation) or parent/
subsidiary companies (vertical
amalgamation).
arrangement available for
more complex amalgamations,
though this is rarely used in
practice.
1.2 Preferred pre-integration Brother/sister (horizontal No preference.
structure, for example: parent/ amalgamation) is more time
subsidiary or brother/sister? efficient.
1.3 Do all rights and obligations Yes, on the effective date No.
transfer by operation of law? of the amalgamation, each
amalgamating company
ceases to exist as an
entity separate from the
amalgamated company and
the amalgamated company
succeeds to all the property,
rights and privileges, and all
the liabilities and obligations,
of each amalgamating
company.

Section 10

1.4 What financial statements The directors of each None, however the business
or independent valuations amalgamating company should be transferred for fair
are required? must prepare a solvency market value.
statement in relation to the
amalgamation. Therefore,
the amalgamating company
should prepare management
accounts to provide the basis
for the solvency statement.
1.5 Are there audit requirements The shareholders’ resolutions Normally date of completion
for both companies? should specify a date on of the asset transfer.
which the amalgamation
is intended to become
effective. If that date is
the same as or later than
the date on which the
Companies Registry of Hong
Kong registers the required
documents, the specified date
will be the effective date of
amalgamation.
If the specified date is earlier
than the date of registration
by the Companies Registry,
the effective date will be
the date of the certificate of
amalgamation issued by the
Companies Registry.
perspectives?


1.7 Is a creditor’s notice period The amalgamating companies No, but creditors’ consent is
required? are required to given written required for legal transfer of
notice of the proposed their debts.
If yes, are there mandatory amalgamation to every
waiting periods? secured creditor and publish
a notice of the proposed
amalgamation in an English
and a Chinese newspaper in
Hong Kong:
• at least 21 days before the
date of the general meeting
approving a vertical or a
horizontal amalgamation
• on or before the circulation
date of the written
resolutions approving a
horizontal amalgamation
For a vertical amalgamation,
there is a waiting period of 21
days. This does not apply to a
horizontal amalgamation.
1.8 How long will integration For straightforward cases, Approximately one to two
take from finalization of approximately two months months depending on
plan and all information from finalizing the plan. This employee issues.
provided (including financial excludes the time required to
statements)? obtain third-party consents, if
applicable.
INDONESIA Merger Asset Sale

1.1 Local integration method Merger. Asset sale

1.4 What financial statements or Financial statements of the Assets should be transferred
independent valuations are relevant companies for three at fair market value for
required? years and, depending on the tax, corporate benefit, and
tax approach, valuations may preference reasons on a
Are there audit requirements be required. potential bankruptcy.
for both companies?
No audit requirements,
however the Tax Office may
conduct a random audit
request in relation to certain
transactions of the entities
involved in the transaction.

Section 10
INDONESIA Merger Asset Sale

1.5 Legal Effective Date of This can be either: (i) the date Normally date of completion
Integration specified in the merger deed; of the asset transfer.
(ii) the date of approval of the
merger by the Ministry of Law
and Human Rights; or (iii) the
date of the merger deed.
perspectives?
1.7 Is a creditor’s notice period Yes. Thirty days’ notice No.
required? must be given before the
shareholders’ meetings to
If yes, are there mandatory approve the merger. Creditors
waiting periods? have the right to make claims
within 14 days of the merger
announcement (such claims
must be settled before the
shareholders’ meetings).
1.8 How long will integration Three to five months, Can take between two to
take from finalization of depending on complexity. three weeks to three to four
plan and all information months from execution of
provided (including financial the asset sale agreement,
statements)? depending on complexity of
the sale.

1.2 Preferred pre-integration Generally, parent/subsidiary No preference.

structure, for example: parent/ (simpler procedure), although
subsidiary or brother/sister? this depends on the tax
or financial position of the
companies.
1.4 What financial statements or The financial statements None, however the business
independent valuations are of both companies for the should be transferred for fair
required? latest financial year must be market value.
disclosed (as a pre-merger
Are there audit requirements disclosure document). There are no audit
for both companies? requirements for either entity.
There are no audit
requirements for either entity.


1.5 Legal Effective Date of An effective date as agreed in The date of transfer as agreed
Integration the merger agreement. between the selling entity and
the buyer entity.
perspectives?
1.7 Is a creditor’s notice period Yes, a minimum of one month No.
required? before the effective date.
waiting periods?
1.8 How long will integration Two to three months. Depends on size and
take from finalization of complexity of sale.
statements)?

is available in Malaysia.
Amalgamation under scheme
of arrangement rarely used.
1.4 What financial statements or N/A. None. However, due to
independent valuations are undue preference provisions
required? (which can result in offending
transactions being held void
against a liquidator) the buyer
should obtain an independent
valuation where the target
is in financial difficulty. If
land is being transferred, an
independent valuation of the
land may also be beneficial to
avoid the stamp office over-
assessing potential stamp
duty.

Section 10

Integration of the asset transfer.
1.6 Can merger/asset sale be N/A. No preference.
perspectives?
1.7 Is a creditor’s notice period N/A. No. However, creditors’
required? consent is required for legal
transfer of their debts.
waiting periods?
1.8 How long will integration N/A. Can take between two to
take from finalization of three weeks to three to four
plan and all information months from execution
provided (including financial of asset sale agreement,
statements)? depending on complexity of
the sale.

1.1 Local integration method Mergers and consolidations. Asset sale.

1.4 What financial statements or The merging companies are None, however the assets
independent valuations are required to submit audited should be transferred at fair
required? financial statements as at a market value. If the assets
date not earlier than 120 days are transferred in exchange
prior to the date of filing for issuance of shares stock,
of the merger application Philippine SEC approval of
with the Philippine SEC. The the valuation of the assets is
audited financial statements required.
of the absorbed entity must
be accompanied by a long-
form audit report.
1.5 Legal Effective Date of Date of issuance by the Normally the date of
Integration Philippine SEC of the completion of asset transfer.
Certificate of Filing of the Certain types of assets (for
Articles of Merger. example, land and shares of
stock) require registration for
the transfer to be effective.


1.6 Can merger/asset sale be No. A merger is deemed Generally, no. An asset sale
retrospectively effective effective on the date of is effective on the date of
from tax and accounting issuance by the Philippine SEC completion of the asset
perspectives? of the Certificate of Filing of transfer. In cases involving
the Articles of Merger. certain types of assets (for
If yes, what is deadline for example, land and shares
filing merger application? The tax implications for each of stock), the subsequent
constituent company and registration of ownership of
the surviving company are the assets in the name of the
determined by reference buyer at the corresponding
to the date the merger is registry is also required.
deemed effective. Each
company must continue to
file returns in its own name
and comply with its tax
obligations up to the date
immediately before the
effective date of the merger.
1.7 Is a creditor’s notice period No, unless one of the merging Yes. Under the Bulk Sales
required? entities is insolvent, in which Law, the seller must notify its
case publication of the merger creditors at least 10 days prior
If yes, are there mandatory and obtaining the consent of to the transfer.
waiting periods? creditors are required.
1.8 How long will integration Two to three months. One to two months, although
take from finalization of this will depend on the
plan and all information type of assets involved and
provided (including financial whether or not regulatory
statements)? approvals are required.

1.1 Local integration method Amalgamation in accordance Asset sale.
with the Singapore Companies
Act.
1.2 Preferred pre-integration No preference from a legal Generally, parent/subsidiary,
structure, for example: parent/ perspective. although this varies
subsidiary or brother/sister? depending on business needs.
From an accounting
perspective, a parent/
subsidiary relationship tends
to be preferred to avoid
issues arising in relation to the
accounting treatment of a
brother/sister amalgamation.

Section 10

1.4 What financial statements or There is no statutory None, however the business
independent valuations are requirement to prepare is typically transferred at fair
required? financial statements, or market value.
to conduct independent
Are there audit requirements valuations or an audit for the
for both companies? amalgamation.
The board of directors of
each of the amalgamating
companies is however
required to make a solvency
statement in the form of a
declaration in writing. To this
end, the directors should have
regard to the latest financial
statements prepared for the
relevant company.
1.5 Legal Effective Date of Date shown in the notice Normally date of completion
Integration of amalgamation issued by of the asset transfer.
the Singapore Accounting
and Corporate Regulatory
Authority (“ACRA”).
Note that the date will usually
reflect the date specified in
the amalgamation proposal
submitted to ACRA, but such
date cannot be earlier than
the date of submission to
ACRA.
perspectives?


1.7 Is a creditor’s notice period The directors of the No. However, creditors’
required? amalgamating company consent will be required for
are required, not less than legal transfer of their debts.
21 days before the requisite
waiting periods?
general meeting to approve
the amalgamation, to give
notice of the proposed
amalgamation to every
secured creditor of the
amalgamating companies
(if any). If there are any
such creditors then this will
preclude shortening the
notice period for the general
meeting.
There are no mandatory
waiting periods.
1.8 How long will integration Approximately three to four Approximately one to two
take from finalization of weeks from the date of months.
plan and all information submission to ACRA.
statements)?

1.1 Local integration method Merger (only available for Statutory acquisition of assets
companies limited by shares). under the Enterprises Merger
If a party to the merger and Acquisition Law, including:
is another form of limited
company, the surviving entity • transfer of all or an essential
must be a company limited part of a business or assets
by shares. • acquisition of another’s entire
The Enterprises Merger and business or assets which
Acquisition Law includes: would have a significant
impact on the buyer
• statutory mergers
• s imple parent/subsidiary
mergers.


Section 10

1.4 What financial statements or None for private companies. None for private companies.
independent valuations are
required?
for both companies?
1.5 Legal Effective Date of The closing date specified in Normally date of completion
Integration the merger agreement. of the asset transfer.
perspectives?
1.7 Is a creditor’s notice period Yes, 30 days after public Yes, publication of an
required? announcement and individual announcement to the
notification. creditors is required by law for
If yes, are there mandatory general assumption of assets/
waiting periods? business.
1.8 How long will integration Approximately three months Approximately three months
take from finalization of from board approval of the from board approval of the
plan and all information merger. acquisition.
statements)?

1.1 Local integration method Amalgamation, where two Asset sale.
or more companies are
amalgamated to create a new
company.


1.4 What financial statements or None. In the amalgamation, In a normal sale of assets,
independent valuations are the newly created company the selling entity is required
required? will carry the value of assets to sell assets at not less than
and liabilities recorded in market value, unless there are
Are there audit requirements the books of account of the justifiable grounds for not
for both companies? amalgamating companies in doing so. If this is not done,
its accounts for the purposes the Revenue Department
of depreciation and future may assess corporate
disposal. income tax against the seller.
Determination of market price
is a question of fact.
In a sale of assets via an
entire business transfer
scheme, where the selling
entity is required to transfer
all assets and liabilities to
the buyer entity and register
the dissolution with the
Ministry of Commerce in the
same accounting period, the
transfer of assets and liabilities
can be made at book value.
The buyer must use the
book value of the assets in
its accounts for depreciation
and future disposal purposes,
regardless of the actual
transfer price.
1.5 Legal Effective Date of Date of registration of the Normally date of completion
Integration amalgamation with Ministry of the asset transfer.
of Commerce.
perspectives?
1.7 Is a creditor’s notice period Yes, notice must be published No.
required? at least once in a local
newspaper and a notice must
If yes, are there mandatory be sent to all creditors giving
waiting periods? them 60 days to object.
1.8 How long will integration One to three months. One to two weeks.
statements)?

Section 10
VIETNAM Merger Asset Sale

1.1 Local integration method Merger (either by absorption Asset sale.
or consolidation).
sister?
1.4 What financial statements or Independent valuations are Independent valuations are
independent valuations are not required. not required.
required?
Financial statements of any Financial statements of any
Are there audit requirements foreign invested companies foreign invested companies
for both companies? must be audited by an must be audited by an
independent auditor. independent auditor.
1.5 Legal Effective Date of The date on which an For assets that require
Integration Enterprise Registration registration of ownership
Certificate is issued to the or use rights, the date the
surviving company as the buyer is registered with the
result of the merger. pertinent authorities as the
legal owner or the legal user
of the assets.
For other assets, the date the
relevant asset is delivered to
the buyer.
perspectives?
1.7 Is a creditor’s notice period The merger contract must Generally no, unless required
required? be sent to creditors within 15 under the agreements
days of signing. between the company and
If yes, are there mandatory the relevant creditor.
waiting periods? There are no mandatory
waiting periods.
1.8 How long will integration One to three months, however One to three months, however
take from finalization of potentially longer if there will potentially longer if there will
plan and all information be employee redundancies. be employee transfers and/or
provided (including financial redundancies.
statements)?


AUSTRIA Merger Asset Sale
sister?
1.4 What financial statements or Closing balance sheet of the None. Business transfer must
independent valuations are disappearing company (annual meet various arm’s length
required? financial statements may be criteria, including that the
used). This is only required purchase price corresponds to
Are there audit requirements to be audited if the annual fair market value. Obtaining a
for both companies? financial statements are valuation from a third party is
required to be audited. advisable.
In addition, a merger balance
sheet must be drawn up by
the disappearing company.
Both companies may need
to prepare an interim balance
sheet if the last regular
balance sheet was prepared
more than six months prior
to signature of the merger
agreement (although this
requirement may be waived).
Neither the merger balance
sheet nor interim balance
sheet need to be audited.
1.5 Legal Effective Date of Date of registration by the Normally date of completion
Integration Commercial Court. of the asset transfer.
1.6 Can merger/asset sale be Yes, up to nine months from No.
retrospectively effective the date of the merger
from tax and accounting accounts (which cannot be
perspectives? more than nine months old).
The merger application must
If yes, what is deadline for be filed within nine months
filing merger application? of the date of the merger
accounts.
1.7 Is a creditor’s notice period No. However, creditors may No. However, creditors have
required? make a request for security the right to object to the
over their claims for a transfer of the respective legal
If yes, are there mandatory period of six months after relationship.
waiting periods? completion of the merger.
1.8 How long will integration One to two months, One to two months,
take from finalization of depending on employee depending on employee
plan and all information consultation. consultation.
statements)?

Section 10

sister?
1.3 Do all rights and obligations Yes, except for non-assignable No.
transfer by operation of law? items (such as non-assignable
licenses).
Rights in certain assets (eg,
immovable property, securities
and other types of movable
property) are subject to state
registration in the name of the
surviving company.
1.4 What financial statements or As a matter of practice, A balance sheet or inventory
independent valuations are audited financial statements, of the surviving company’s
required? balance sheets and other assets describing the
financial documents of both composition and value of the
Are there audit requirements companies may be required assets may be required for tax
for both companies? for examination by the local or accounting purposes. The
authority (ie, the Ministry business should be transferred
of Taxes of the Republic of for fair market value.
Azerbaijan).
1.5 Legal Effective Date of Date entered into the State Effective date of the asset
Integration Register of Legal Entities sale and purchase agreement
showing cessation of the (ie, the completion date) or
activities of the disappearing the registration date of the
company (ie, the date it is property (for movable or
removed from the registry). immovable assets) subject
to state registration with the
respective state authorities.
perspectives?
1.7 Is a creditor’s notice period Creditors must be provided Although not expressly
required? with written notice under required under Azerbaijani law,
the Civil Code. There is no delivery of a written notice to
If yes, are there mandatory mandatory waiting period. creditors is advisable. In the
waiting periods? case of a transfer of liabilities,
consent from the respective
creditors is required.


1.8 How long will integration Approximately five to six Approximately one to six
take from finalization of months. The merger may months depending on form
plan and all information also trigger a mandatory of assets and complexity of
provided (including financial requirement to obtain merger the plan. The transfer of assets
statements)? control clearance. may also trigger a mandatory
requirement to obtain merger
control clearance.

1.1 Local integration method Simplified merger (ie, The transfer of assets can be
parent/subsidiary merger) done by means of an asset/
and full merger (ie, any business transfer agreement
merger other than a parent/ (ie, the contractual way) or
subsidiary merger). pursuant to a merger-like
procedure (as set out in the
Belgian Company Code).
1.2 Preferred pre-integration Parent/subsidiary (fewer Not relevant in an asset sale.
structure, for example: corporate formalities).
sister?
1.3 Do all rights and obligations Yes (with a few exceptions). No (unless the merger-like
transfer by operation of law? procedure as set out in the
Belgian Company Code is
followed).
1.4 What financial statements or Statutory accounts of both None, however the business
independent valuations are companies for the previous should be transferred for fair
required? three fiscal years (and the market value.
related annual board reports
Are there audit requirements and statutory auditor reports
for both companies? if any) are required. If the most
recent statutory accounts are
more than six months old
(counting from the date of the
merger proposal), an interim
balance sheet as at a date
not more than three months
from the date of the merger
proposal is also required. This
requirement can however be
waived by unanimous consent
of the shareholders of both
merging companies.
No independent valuations
are required from a legal point
of view.

Section 10

1.4 If the merger is not a parent/
subsidiary merger, the
following are also required
(unless waived by unanimous
consent of the shareholders of
the merging companies):
• statutory auditor’s report
for both companies (or, if
there is no statutory auditor,
external accountant’s report)
on the merger
• directors’ report on the
financial condition of the
merging companies
If these are waived by the
shareholders, the following are
required:
• report of the statutory
auditor for the surviving
company (or, if there is no
statutory auditor, external
accountant’s report)
• directors’ report for the
surviving company, on
the capital increase (by
contribution in kind)
resulting from the merger
1.5 Legal Effective Date of Date specified in the merger Date of completion of the
Integration deeds (although the merger asset transfer.
will only become binding
upon third parties following
publication of an extract
of the merger deeds in the
Belgian Official Gazette).
1.6 Can merger/asset sale be Yes. From a tax and No.
retrospectively effective accounting perspective,
from tax and accounting retrospective effect up to a
perspectives? maximum of seven months
generally allowed (providing
If yes, what is deadline for this does not go beyond the
filing merger application? end of the previous fiscal year
of the merging companies).


1.7 Is a creditor’s notice period No. However, a mandatory No. However, creditors’
required? six-week waiting period must consent is required for
be observed between filing the legal transfer of their
the merger proposal with the receivables.
clerk’s office of the competent
commercial court and the
shareholders’ meeting to
approve the merger.
Creditors have a two-month
period from publication in
the Belgian Official Gazette
to demand prior security for
claims that existed prior to
the publication but were not
yet due.
1.8 How long will integration Three to four months. This Approximately three to
take from finalization of includes a six-week waiting four months, depending
plan and all information period between filing the on the implementation of
provided (including financial merger proposal with the any new labor conditions
statements)? competent Commercial Court (ie, if transferred employees
and publication of the merger oppose the new conditions)
proposal in the Annexes to and the nature of the assets
the Belgian Official Gazette transferred.
and the shareholders’ meeting
approving merger (publication
generally takes place two
weeks after filing of the
merger proposal).

1.1 Local integration method Merger (merger by Asset sale.
amalgamation).
1.2 Preferred pre-integration Parent/subsidiary (simplified No preference.
structure, for example: parent/ procedure).
1.3 Do all rights and obligations Yes, except for trade licenses, No.
transfer by operation of law? concessions and other
administrative certificates.

Section 10

1.4 What financial statements or Final audited financial None, however the business
independent valuations are statements of both companies should be transferred for fair
required? are required. If the final annual market value.
financial statements, or last
Are there audit requirements annual/extraordinary financial
for both companies? statements of both companies
were made as at a date more
than six months before the
proposed date of the merger,
interim audited financial
statements of both companies
will be required.
An opening audited balance
sheet of the surviving entity
will also be required.
An independent valuation of
the disappearing entity will
be required if the registered
capital of the surviving entity
is increased in consideration
for the receipt of the assets of
the disappearing entity.
1.5 Legal Effective Date of The date of registration of Normally the date of
Integration the merger at the Commercial completion of the asset
Register (upon which the transfer (in the case of a
employees, assets and transfer of a business as a
contracts are transferred to going concern, title to the
the surviving entity and the business as a whole will
transferor entity ceases to transfer upon publication of
exist). confirmation of the purchase
of the enterprise in the
Collection of Documents).
1.6 Can merger/asset sale be Yes. The merger can have No.
retrospectively effective retrospective effect from
from tax and accounting accounting and corporate
perspectives? income tax perspectives
provided the effective date is
If yes, what is deadline for not more than 12 months in
filing merger application? advance of the date of filing
the application for registration
of the merger with the
Commercial Register.


1.7 Is a creditor’s notice period Yes. The board of directors of No. However, creditors’
required? each company must publish consent is required for the
a notice to the company’s legal transfer of their debts.
If yes, are there mandatory creditors of the merger (and
waiting periods? their right to apply for either
settlement of their claims
against the company or for
additional security if this is
not possible) at least 30 days
before the date of the general
meeting to approve the
merger.
1.8 How long will integration Three to nine months, Approximately one to two
take from finalization of depending on the legal form months, depending on
plan and all information of the companies, the speed whether real estate transfers
provided (including financial of the court registration are involved and on any
statements)? process and any employee employee consultation.
consultation.

1.1 Local integration method Merger by: (i) amalgamation Asset sale.
of one entity into the
surviving entity; or (ii) the
incorporation of a new entity
by two or more existing
entities.
1.3 Do all rights and obligations Yes, within the limits of the Yes.
transfer by operation of law? merger agreement (and
without prejudice to creditors’
rights).

Section 10

1.4 What financial statements or An independent valuation A valuation of the assets
independent valuations are of the merging company’s must be prepared by the
required? assets and debts is required selling entity’s auditors and
to be submitted with the presented at the shareholder
draft merger agreement to meeting to approve the
the Egyptian Investment acquisition.
Authority (which then
verifies its accuracy). A
valuation committee at the
Investment Authority will
conduct an evaluation and
issue a valuation report to the
merging company’s board
of directors or managers
before the merger agreement
may be signed. The board of
directors or managers of both
companies must refer the
valuation committee’s report
to the company’s auditor
who will then issue a report
on the merger procedures
to be conducted (this will be
presented at the shareholder
meetings to approve the
merger).
1.5 Legal Effective Date of Date of issue of the relevant Date of completion of the
Integration ministerial decree by the sale of each asset. This can
competent minister. vary depending on the type
of asset.
1.6 Can merger/asset sale be Yes. Retrospective effect is No.
retrospectively effective possible up to the first day
from tax and accounting of the fiscal year. There is no
perspectives? legally required deadline for
filing the merger application.
1.7 Is a creditor’s notice period No. No.
required?
waiting periods?
1.8 How long will integration Approximately four to seven Approximately two to three
take from finalization of months. months.
statements)?

FRANCE Merger Dissolution Asset Sale

1.1 Local integration Simplified merger Dissolution Asset sale —
method (fusion simplifiée) without liquidation “transfer of a going
between stock (Transmission concern” (cession de
companies or limited Universelle du fonds de commerce).
liability companies. Patrimoine,
Merger between “TUP”) if between
stock companies parent/100%
or limited liability subsidiary.
companies in other
cases.
1.2 Preferred pre- Parent/subsidiary. Parent/subsidiary. No preference.
integration
structure, for
example: parent/
subsidiary or
brother/sister?
1.3 Do all rights and Yes, except for Yes, except for No. All assets and
obligations transfer administrative administrative liabilities (if any) to be
by operation of law? contracts and for contracts and for transferred should be
agreements entered agreements entered listed in the business
into or permits into or permits transfer agreement.
granted on a personal granted on a personal
basis. basis.
1.4 What financial No valuation and No valuation and None, however the
statements or no contribution no contribution business should be
independent appraiser required appraiser required transferred for fair
valuations are for a parent/100% for a parent/100% market value (in
required? subsidiary merger. subsidiary dissolution euros).
A valuation and without liquidation.
Are there audit contribution appraiser
requirements for is required in other No financial
both companies? cases. statements are
required.
Statutory accounts
of the disappearing
company as at the
merger effective date
are required from an
accounting and tax
perspective. If more
than six months old,
interim accounts
dated less than three
months from the date
of execution of the
merger agreement
must be prepared and
verified by a statutory
auditor (limited
review).

Section 10
FRANCE Merger Dissolution Asset Sale

1.5 Legal Effective Date of final decision At the end of a Effective date
Date of Integration of the shareholder(s) 30-day creditor indicated in the
of the surviving opposition period or business transfer
entity to approve the upon settlement of agreement.
merger. all oppositions if any
are filed during the
opposition period.
1.6 Can merger/ Yes. The merger may The TUP may have No.
asset sale be have retrospective retrospective effect
retrospectively effect from tax for tax purposes up
effective from tax and accounting to the first day of
and accounting perspectives up to the fiscal year during
perspectives? the first day of the which the TUP
fiscal year in which the occurs.
If yes, what is merger occurs.
deadline for The TUP cannot
filing merger have retrospective
application? effect for accounting
purposes.
1.7 Is a creditor’s notice Yes. There is a 30-day Yes. There is a 30-day Sale must be
period required? opposition period opposition period from registered with
from publication publication of the TUP. the French tax
If yes, are there of the draft Oppositions will delay administration and
mandatory waiting merger agreement. legal effectiveness of notices published.
periods? Oppositions do not the TUP to the date Creditors of the seller
prevent the merger the oppositions are can oppose payment
process from being ruled upon by the of the purchase price
effected/completed. Commercial Court. during a 10-day period
The companies must following the second
comply with the publication of the
conditions imposed sale (can be a four-
for the merger to be and-a-half-month
binding against the period vis-à-vis the
creditor concerned. tax or social security
administration).
1.8 How long will Three to four months, Between four to six Approximately one
integration take depending on weeks depending to two months,
from finalization employee consultation on employee depending
of plan and all and appraiser consultation. on employee
information intervention. consultation. The
provided purchase price must
(including financial be held in escrow
statements)? until the end of the
creditors’ opposition
period.

GERMANY Merger Asset Sale

1.1 Local integration method Merger (Verschmelzung). Asset sale.
parent/subsidiary or brother/ Brother/sister mergers may
sister? require a capital increase by
the absorbing entity for tax
purposes and valuation of
the merged business for the
capital increase.
1.4 What financial statements or Statutory accounts for the None, however the business
independent valuations are disappearing company only. should be transferred for fair
required? The accounts must be in the market value (potentially
same form and meet the triggering a taxable gain).
Are there audit requirements Exemptions are available in
for both companies? same audit requirements
as the company’s annual certain cases.
accounts. Interim accounts
are admissible if the annual
accounts are older than
eight months on the day of
the filing of the merger for
registration with the German
Commercial Register.
A valuation from a CPA is
required if a capital increase is
also completed in the context
of the merger.
Integration merger by the Commercial of the asset transfer.
Register Court of surviving
company.
1.6 Can merger/asset sale be Merger may only be No, unless assets are
retrospectively effective retrospectively effective transferred as a result of a
from tax and accounting provided the merger is filed reorganization measure (eg,
perspectives? with register court within a merger).
If yes, what is deadline for period of eight months from
filing merger application? date of merger accounts.
1.7 Is a creditor’s notice period No. No, however creditors’
required? consent is required for
If yes, are there mandatory the legal transfer of their
waiting periods? receivables.
1.8 How long will integration Two to three months, One to three months,
take from finalization of depending on whether there depending on social plans
plan and all information is a delay due to works council or any other employee
provided (including financial information. Registration of consultation.
statements)? the merger takes between
four to six weeks.

Section 10

1.1 Local integration method Merger — amalgamation. Asset sale.
sister?
1.4 What financial statements or Audited closing balance sheets None. However, transfer
independent valuations are and inventory of assets of pricing rules must be observed
required? the merging companies, as and parties must retain
at the date specified in the documentation justifying the
Are there audit requirements first shareholders’ resolution transfer price stated in the
for both companies? concerning the merger. The sale agreement.
audit must be conducted by
an auditor independent of
both companies.
An opening balance sheet
and inventory of assets of the
surviving company must also
be prepared.
Integration merger by the Court of of the asset transfer.
Registration in the Trade
Registry.
Subject to satisfaction
of certain procedural
requirements, the merging
companies may request the
court to register a particular
merger effective date.
In practice, the court of
registration usually accepts
the chosen merger effective
date if the procedural
requirements are met.
perspectives?


1.7 Is a creditor’s notice period Yes. Thirty-day period No.
required? following the publication
of the second set of merger
If yes, are there mandatory announcements in the
waiting periods? Official Gazette (unless, in
the case of limited liability
companies or companies
limited by shares, the equity
of the merged company
is higher than that of its
predecessors).
1.8 How long will integration Three to six months, One to three months.
take from finalization of depending on the legal form
plan and all information of merging companies and the
provided (including financial speed of the court registration
statements)? process.

1.1 Local integration method Merger. Asset sale — sale of business
unit.
1.2 Preferred pre-integration Parent/subsidiary or brother/ No preference.
structure, for example: sister (simplified procedure).
sister?
1.3 Do all rights and obligations Yes. Yes, in principle, to the
transfer by operation of extent that the relevant
law? rights and obligations
pertain to the business.
However, pursuant to
mandatory provisions of law
(and despite any contrary
agreement between the
parties):
• the selling entity will
not be released from any
liabilities relating to the
transferred business and
arising before transfer of
the business, unless the
relevant creditors have
explicitly agreed to release
the seller

Section 10

• t he seller and the buyer of
an ongoing business are
jointly and severally liable
vis-à-vis third parties for
liabilities pertaining to the
transferred business shown
in the selling entity’s
accounts
• t he seller and the buyer
are jointly liable for all
employee-related liabilities
as at the date of the
transfer (following certain
statutory procedures, the
employees can release
the selling entity from its
obligations deriving from
the original employment
relationship)
As to contracts, contracts
pertaining to the business
not having a personal
nature are transferred to
the buyer. The counterparty
can however terminate such
agreement within three
months from notice of the
assignment providing it has
evidence of a good cause
supporting the termination.
1.4 What financial statements Statutory accounts of both None, however the business
or independent valuations companies for a financial should be transferred for
are required? year ending less than six fair market value. Updated
months prior to the date interim financial statements
Are there audit requirements of filing of the merger plan will be required to
for both companies? are required, or unaudited determine the value of the
financial statements of both transferring business and
companies for the period to identify the assets and
ended less than 120 days liabilities to be transferred.
prior to the date of filing of
the merger plan (formal step
required to start the merger
process).
The requirement to prepare
interim financial statements
can be waived by
unanimous consent of the
stockholders of the merging
companies.


1.5 Legal Effective Date of Date of registration by the Date of completion of the
Integration Companies Register or any asset transfer (ie, execution
subsequent date specifically before a notary public) or
identified in the merger any other date subsequently
deed. agreed.
1.6 Can merger/asset sale be Yes. The merger can have No.
retrospectively effective retrospective effect,
from tax and accounting provided the effective date
perspectives? does not precede the end of
the last fiscal year of any of
If yes, what is deadline for the companies participating
filing merger application? in the merger or, if more
recent, the end of the last
fiscal year of the surviving
company.
1.7 Is a creditor’s notice period Yes. The creditors have No.
required? 60 days (30 days where
both companies are s.r.l.
companies and they are
sister) to oppose the
merger following filing of
the special shareholders’
resolution, unless: (i)
individual creditors’
consent is obtained; (ii)
bank guarantees are given
sufficient to discharge
the debts owed to the
dissenting creditors; (iii) the
dissenting creditors are paid;
or (iv) a statement from an
independent auditing firm
is obtained confirming that
the financial situation of the
merging companies does
not make any guarantee for
the benefit of the creditors
necessary.
1.8 How long will integration Two months if all companies One to two months,
take from finalization of are s.r.l. (limited liability depending on employee
plan and all information companies) and three consultation period (being
provided (including financial months if all companies 25 days prior to the
statements)? are S.p.A. (joint stock execution of a binding sale
corporations). In August, agreement).
the creditor’s notice period
stops running (court summer
holidays).

Section 10
KAZAKHASTAN Merger Asset Sale

sister?
1.4 What financial statements or Statutory accounts for the If the assets are sold
independent valuations are last three financial years of as a going concern, an
required? both merging companies are inventory list, balance sheet
required. and statement from an
Are there audit requirements independent auditor will need
for both companies? If, at the time of the merger
filing, more than six months to be prepared by the seller
have passed since the end to confirm the composition of
of the last financial year, the the assets. If the assets are not
management must prepare an sold as a going concern, no
(unaudited) interim statement statements or valuations are
of assets and liabilities. required.
1.5 Legal Effective Date of First day following the date of If the transfer of assets
Integration execution of the notarial deed requires registration (for
of merger. example, in respect of real
estate or vehicles), the date
on which this registration is
completed. Otherwise, the
date determined in the sale
and purchase agreement.
1.6 Can merger/asset sale be Yes. The merger can be No.
retrospectively effective retrospective up to the
from tax and accounting beginning of the financial year,
perspectives? provided that:
If yes, what is deadline for • from such date, the
filing merger application? financial information of the
disappearing company is
included and reported in
the annual accounts of the
surviving company
• the notarial deed of legal
merger is executed within 12
months of such date
• no one-off profit is expected
or realized

KAZAKHASTAN Merger Asset Sale

1.7 Is a creditor’s notice period Creditors may oppose to If the assets are sold as a
required? the merger during a period going concern, any creditors
of one month following affected must be notified of
If yes, are there mandatory the announcement that the the sale prior to the transfer.
waiting periods? merger proposal has been Creditors who have not
filed. consented to the transfer
may, within three months
If an opposition is after receipt of the notice,
raised the merger may demand early termination,
only be executed upon performance or termination
the withdrawal of the of the relevant obligations
opposition or upon a court and reimbursement of
order setting aside the damages, or, alternatively,
opposition. unwinding of the transfer.
If the assets are not sold
on a going concern basis,
notifications will not
generally be necessary.
1.8 How long will integration Two to three months, Five to six months for sale
take from finalization of depending on employee of the assets as a going
plan and all information consultation period. concern and one to two
provided (including financial months for sale not as a
statements)? going concern.

structure, for example: procedure).
sister?
1.3 Do all rights and obligations Yes, except for IP rights No.
transfer by operation of or for rights in rem other
law? than collateral established
on movable or immovable
properties. Certain contracts,
such as contracts including
a non-assignment clause or
agreements entered into on
personal basis may also be
excluded.

Section 10

1.4 What financial statements Interim financial statements None.
or independent valuations of the merging companies,
are required? dated less than three
months prior to the date
Are there audit requirements of the draft terms of the
for both companies? merger, must be drawn up
by the managers/directors
of each company.
If the financial year of the
merging companies ended
less than six months before
the date of the draft terms
of the merger, annual
accounts may be used.
1.5 Legal Effective Date of The date of the last On the effective date stated
Integration shareholder general meeting in asset transfer agreement.
of the merging companies
approving the merger (in the
case of a common merger),
or the date of the execution
of a notary certificate
ascertaining the effectiveness
of the merger (in the case of a
simplified merger).
However, the merger only
becomes effective against
third parties as from the
date of publication of the
minutes of the extraordinary
shareholder general meeting
or notary certificate
mentioned above in the
Luxembourg electronic filing
platform (Recueil Electronique
des Sociétés et Associations)
(“RESA”).
1.6 Can merger/asset sale be From an accounting Yes.
retrospectively effective perspective, the merger
from tax and accounting may be retrospectively
perspectives? effective, provided this is
not prior to the start of the
If yes, what is deadline for current financial year of the
filing merger application? surviving company.
From a tax perspective,
the merger cannot be
retrospectively effective.


1.7 Is a creditor’s notice period Yes. The deeds ascertaining No.
required? the effectiveness of the
merger, ie, the minutes
If yes, are there mandatory of the last extraordinary
waiting periods? shareholder general meeting
approving the merger or
the notary certificate in
case of a simplified merger)
must be published in the
RESA within five days of
registration of the merger
with the Luxembourg Trade
and Companies Register.
Creditors of the merging
companies who have
existing claims dating prior
to publication may request,
within two months of
the publication, adequate
security for any debts,
where the merger makes
this protection necessary.
1.8 How long will integration At least six weeks to two Approximately one to two
take from finalization of months. months, depending on
plan and all information employee consultation.
statements)?
MOROCCO Merger Asset Sale 1 Asset Sale 2

1.1 Local integration Simplified merger Asset sale — transfer Asset contribution
method (fusion simplifiée) of a going concern (apport partiel
between stock (cession de fond de d’actif).
companies or limited commerce).
liability companies.
1.2 Preferred pre- Parent/subsidiary. No preference. No preference.
integration
structure, for
example: parent/
subsidiary or
brother/sister?

Section 10

1.3 Do all rights and Yes, although No transfer by No transfer by
obligations transfer certain rights operation of law, operation of law,
by operation of and obligations except for the except for the
law? are subject to employment employment
administrative/ contracts. contracts.
regulatory
authorizations and All transferred assets All transferred assets
permits. and liabilities (if any) and liabilities (if any)
should be listed in should be listed in
the sale agreement. the sale agreement.
1.4 What financial Auditor’s valuation and No specific legal Under the law on
statements or report are not required requirements. joint stock companies,
independent for a parent/100% a contributions
valuations are subsidiary merger. auditor must provide
required? a valuation of the
Approved financial contribution and a
Are there audit statements for the report.
requirements for previous three years
both companies? must be provided. There are no other
If more than six specific legal
months old, interim requirements.
accounts dated less
than three months
from the date of the
merger agreement are
required.
1.5 Legal Effective Date Date of final decision Effective date Effective date
of Integration of the shareholder(s) specified in the sale specified in the sale
of the surviving entity. agreement. agreement.
In all other cases,
the effective date of
integration is the date
of the last general
assembly approving
the transaction, unless
specified otherwise in
the merger agreement.
The specified date
must be between the
fiscal year start date
of the disappearing
company, and the
fiscal year end date
of the surviving
company.


1.6 Can merger/ Yes. If agreed in the No. No.
asset sale be merger agreement,
retrospectively the effective date
effective from tax of integration may
and accounting be set no earlier
perspectives? than the fiscal
year start date of
If yes, what is the disappearing
deadline for company.
filing merger
application? The deadline for
filing is one month
following the signing
date.
1.7 Is a creditor’s The law on joint stock The sale must be The sale must be
notice period companies provides registered with the registered with the
required? creditors with a right tax administration tax administration
to object during a 30- and notices published. and notices published.
If yes, are there day period following Creditors of the Creditors of the
mandatory waiting the last publication of seller can oppose seller can oppose the
periods? the merger. payment of purchase transaction during
price during a 15-day a 15-day period
This period does not period following the following the second
suspend the merger. second publication of publication of the
the sale. transfer.
1.8 How long will Up to three to four Up to three months. Up to three months.
integration take months.
from finalization
of plan and all
information
provided
statements)?

1.1 Local integration method Legal merger. Asset sale.
structure, for example: procedure).
sister?
law?

Section 10

1.4 What financial statements Statutory accounts of both None, unless the parties
or independent valuations companies for the financial agree otherwise.
are required? year ending less than six
months prior to merger
Are there audit requirements filing. If more than six
for both companies? months have elapsed since
the end of the last financial
year, management must
prepare annual accounts
or an (unaudited) interim
statement of assets and
liabilities.
The previous three years’
statutory accounts of both
companies are also required.
1.5 Legal Effective Date of First day after the date of The effective date of the
Integration execution of the notarial asset transfer agreement.
deed of merger. The transfer of specific
assets, with specific
additional transfer
formalities (eg, real estate),
will become legally effective
upon completion of
these additional transfer
formalities (eg, upon
execution of a notarial
transfer deed).
1.6 Can merger/asset sale be Yes. The merger can be No.
retrospectively effective retrospectively effective
from tax and accounting up to the beginning of the
perspectives? financial year, provided that:
If yes, what is deadline for • merger facility for roll-over
filing merger application? at book value applies
• the financial information of
the disappearing company
is included and reported in
the annual accounts of the
surviving company from
the effective date
• the notarial deed of legal
merger is executed within
12 months of the effective
date
• no one-off profit is
expected or realized


1.7 Is a creditor’s notice period Creditors have one month No.
required? following publication of the
merger proposal to oppose
If yes, are there mandatory the merger.
waiting periods?
If an opposition is
raised, the merger may
only be executed upon
the withdrawal of the
opposition or upon a court
order setting aside the
opposition.
1.8 How long will integration Two to three months, Approximately one to
take from finalization of depending on employee two months, depending
plan and all information consultation period. on employee consultation
provided (including financial period, specific transfer
statements)? formalities and required
approvals.
POLAND Merger Sale of Business Asset Sale

1.1 Local integration Merger by absorption: Sale of business as a Sale of assets.
method all assets of the going concern.
target company are
transferred to the
surviving company
in exchange for the
issue of shares to the
shareholders of the
target company.
Merger by
combination (rarely
used): creation of
a new company to
which the assets
of the merging
companies are
contributed in
exchange for the
issue of shares.
Simplified merger:
merger may be
carried out without
increasing the
share capital of the
surviving company if
that company owns
shares in the target
company.

Section 10

1.2 Preferred pre- Parent/subsidiary No preference. No preference.
integration (simplified procedure).
structure, for
example: parent/
subsidiary or
brother/sister?
1.3 Do all rights and Yes, except for the Rights — yes, Rights — yes, unless
obligations transfer following: unless transfer is transfer is limited
by operation of • statute or decision restricted by law or by law or contract.
law? granting a permit, contract. Creditor Liabilities — no,
concession or relief consent is required creditors’ consent is
with transferability to transfer liabilities, required.
restrictions however, the buyer
bears joint and
• if public authorities several liability with
object to the transfer the seller for the
of permits and/or liabilities associated
concessions granted with the business.
to a company
which is a financial
institution
1.4 What financial The merger plan must None, but directors None, but directors
statements or have annexed to it: may be liable for may be liable for
independent • a valuation of the improper valuation. improper valuation.
valuations are assets of the target
required? company as at a
Are there audit date in the month
requirements for before filing of
both companies? the application for
announcement of the
merger plan
• accounting statements
of both merging
companies drawn
up for the purposes
of the merger, as at
the date referred to
above, using the same
methods and the
same layout as the last
annual balance sheet
The merger plan must
be audited by an
independent auditor
appointed by the court
(unless a simplified
merger is used or all
shareholders consent
not to audit the merger
plan).


1.5 Legal Effective Date of registration by Date of execution Date of execution of
Date of Integration Registration Court. of the agreement the agreement unless
unless statutory statutory provisions
provisions of law or of law or the parties
the parties provide provide otherwise.
otherwise.
1.6 Can merger/ A retrospective No. No.
asset sale be treatment of the
retrospectively merger for both
effective from tax tax and accounting
and accounting purposes is not
perspectives? possible. However,
a merger can be
If yes, what is retrospective for
deadline for tax purposes to the
filing merger beginning of the fiscal
application? year, provided that
certain accounting
conditions are
satisfied.
1.7 Is a creditor’s No notice or waiting No. However, No. However,
notice period periods are required. creditors’ consent creditors’ consent
required? Following the merger is required for legal is required for legal
the assets of both transfer of their transfer of their
If yes, are there companies must be liabilities. liabilities.
mandatory waiting separately managed by
periods? the surviving company,
however, until creditors
who gave notice of
their claims within six
months following the
announcement of the
merger are satisfied
or the relevant debts
are secured. Both the
merger plan and the
merger itself must
be published in an
official journal for
court and corporate
announcements.
1.8 How long will Three months. Approximately two Approximately two
integration take to three months, to three months,
from finalization depending on the depending on the
of plan and all position of the position of the parties.
information parties.
provided
statements)?

Section 10
QATAR Merger Asset Sale

sister?
law?
1.4 What financial statements None. None.
or independent valuations
are required?
for both companies?
1.5 Legal Effective Date of Date of filing with Ministry Normally date of completion
Integration of Economy and Commerce. of the asset transfer.
perspectives?
1.7 Is a creditor’s notice period Yes — 30 to 45 days No. However, creditors’
required? depending on the Ministry consent may be required to
of Economy and Commerce transfer obligations.
If yes, are there mandatory instructions. Additional
waiting periods? waiting periods may be
imposed by the Ministry of
Finance for tax reasons.
1.8 How long will integration May be effected May be effected
take from finalization of immediately following the immediately.
plan and all information date of filing with Ministry
provided (including financial of Economy and Commerce,
statements)? provided all waiting periods
have expired.

Sale of Separate
RUSSIA Merger Sale of Enterprise
Assets
1.1 Local integration Merger. Sale of separate Sale of an enterprise.
method assets.
integration
structure, for
example: parent/
subsidiary or
brother/sister?
1.3 Do all rights and Yes, except for non- No. Yes.
obligations transfer transferable items
by operation of of the disappearing
law? company such as
licenses, type approvals
(permissions and
authorizations issued by
governmental bodies or
special organizations)
and certificates of
compliance.
1.4 What financial No mandatory No mandatory Statement of an
statements or valuation requirements. valuation independent auditor
independent The merger may trigger requirements on the composition
valuations are an unscheduled tax (however this is and valuation of the
required? audit of the companies recommended for enterprise is required.
Are there audit involved in the merger. tax purposes).
requirements for
both companies?
1.5 Legal Effective Date In the case of a merger Date of execution Date of state
of Integration of one company into of sale and purchase registration of the sale
another, the date agreement. agreement and of the
of exclusion of the new ownership/rights
disappearing company to the enterprise in
from the Unified State the State Register of
Register of Legal Entities. Rights to Real Estate.
Where two companies
merge to create a new
company — date of
state registration of the
new company.
asset sale be
retrospectively
effective from tax
and accounting
perspectives?
If yes, what is
deadline for filing
merger application?

Section 10
Sale of Separate
RUSSIA Merger Sale of Enterprise
Assets
1.7 Is a creditor’s Yes. The company must No notice Yes. Creditors with
notice period publicly announce requirements. obligations related
required? the merger twice to the enterprise
within two months must be notified
If yes, are there after registering the about the sale prior
mandatory waiting decision to merge with to the transfer of
periods? the state authorities. the enterprise to the
Creditors have 30 days purchaser under the
after the date of the act of transfer and
last announcement acceptance.
to demand early
termination or early
performance of the
company’s obligations
and compensation for
damages.
1.8 How long will Approximately 6 to Approximately two Approximately six
integration take 12 months or longer, to three weeks. months.
from finalization depending on how
of plan and all long the tax authorities
information audit takes.
provided
statements)?

1.1 Local integration method • Merger by absorption: Asset sale.
two entities are merged
into a surviving entity and
the non-surviving entity
ceases to exist.
• Merger by fusion: two
entities are merged into
one new entity and the
two entities disappear
automatically without any
process of dissolution or
liquidation.
sister?
1.3 Do all rights and obligations Yes. Normally the assets are
transfer by operation of transferred without transfer
law? of liabilities unless the
selling entity and the buyer
entity agree otherwise.


1.4 What financial statements The Companies Law provides None.
or independent valuations that, where shares will be
are required? issued in consideration,
both the surviving and the
Are there audit requirements disappearing companies’ net
for both companies? assets must be valued in order
for the merger to become valid.
1.5 Legal Effective Date of The merger resolution becomes Normally date of
Integration enforceable after 30 days from completion of asset
the date of its publication. transfer.
perspectives?
1.7 Is a creditor’s notice period The creditors of the merging No. However, if the
required? entities may, within the 30- selling entity and the
day period from the date of buyer entity agree to
If yes, are there mandatory publication of the shareholders’ transfer the liabilities
waiting periods? resolution approving the related to the purchased
merger, object to the merger. If assets, then the creditors’
creditors object to the merger, consent would be
the merger will be suspended required for legal transfer
until: (i) the creditors have of their debts.
waived their objections; or (ii)
the entities have repaid the
objecting creditor(s) or offered
sufficient security for the
satisfaction of the debt(s) of the
objecting creditor(s) that are not
immediately due and payable. If
no objection is made within the
said period, the merger will be
considered valid.
If one of the merged entities
has outstanding loans then
it is likely that the consent of
the lenders would need to be
secured.
1.8 How long will integration Approximately six to nine Approximately two to four
take from finalization of months. months depending on
plan and all information complexity. The purchase of
provided (including financial industrial facilities (plants)
statements)? needs to be approved by
the Ministry of Commerce
and Investment; in which
case the process may take
six months.

Section 10
SOUTH AFRICA Merger Business Sale Asset Sale

1.1 Local integration Merger (since May 2011 Transfer of a Transfer of specified
method under the South African business as a going assets.
Companies Act), which concern.
can be structured in a
number of ways.
Due to some
remaining uncertainty
on the practical
implementation of
some of the statutory
merger provisions
and potentially
cumbersome procedural
requirements vis-à-vis
creditors and undesired
tax consequences, this
integration method is
currently very rarely
used in practice.
integration
structure, for
example: parent/
subsidiary or
brother/sister?
1.3 Do all rights and Yes. No. Parties No. Parties have
obligations transfer have complete complete contracting
by operation of contracting freedom and can
law? freedom and can agree to exclude
agree to exclude certain rights and/
certain rights and/ or obligations from
or obligations from operation of the asset
operation of the sale and purchase
sale of business agreement.
agreement.
1.4 What financial Neither financial Neither financial Neither financial
statements or statements nor statements nor statements nor
independent independent valuations independent independent
valuations are are required as a valuations are valuations are
required? matter of corporate required as a matter required as a matter
law, but are generally of corporate law, of corporate law,
Are there audit recommended for but are generally but are generally
requirements for larger mergers. recommended for recommended for
both companies? larger business larger asset sales.
There are no audit transfers.
requirements. There are no audit
There are no audit requirements.
requirements.


1.5 Legal Effective Merger takes effect Business sale takes Asset sale takes
Date of Integration on the effective effect on the effective effect on the
date determined date determined in the effective date
in the merger business sale agreement, determined in
agreement. which is typically the day the business sale
after satisfaction of any agreement, which
conditions precedent. is typically the day
after satisfaction
of any conditions
precedent.
asset sale be
retrospectively
effective from tax
and accounting
perspectives?
If yes, what is
deadline for filing
merger application?
1.7 Is a creditor’s notice Yes. After the Under section 34 of the SA No.
period required? requisite resolution Insolvency Act, if the seller
approving the fails to publish a notice of
If yes, are there merger has been the business transfer in the
mandatory waiting adopted, each Government Gazette and
periods? company that is a in newspapers circulating
party to the merger in the district in which that
agreement must business is carried on, not
give notice of the less than 30 days and not
merger to every more than 60 days before
known creditor the date of the business
of that company. transfer, the transfer is
Within 15 business void against the seller’s
days after delivery creditors for a period of six
of the notice to months after the business
creditors, a creditor transfer.
may seek leave
to apply to court Parties commonly contract
for a review of out of the operation of
the merger on section 34, by agreeing
the grounds that not to publish a section
the creditor will 34 notice on the basis
be materially that the seller agrees to
prejudiced by the indemnify the purchaser
merger. from any loss the
purchaser may suffer by
reason of any recourse
taken by the seller’s
creditors in respect of the
transferred business assets.

Section 10

1.8 How long will Approximately two Approximately one to Approximately one
integration take to three months, three months, depending to three months,
from finalization assuming no on, inter alia, transaction depending on
of plan and all creditors’ review size/complexity, whether whether sale assets
information application. business assets include include real estate
provided real estate and obtaining and obtaining of any
(including financial any applicable regulatory applicable regulatory
statements)? approvals. approvals.

sister?
law?
1.4 What financial statements Financial statements for None, however, transfer
or independent valuations the six months prior to the pricing rules apply.
are required? merger.
Are there audit requirements Audit may be compulsory
for both companies? for both companies
depending on the size of the
company.
No independent valuation is
required in parent/subsidiary
(upstream or downstream)
or brother/sister mergers.
A merger between parent/
subsidiary or brother/sister
companies may profit from
a simplified procedure,
whereby the merger may
take place without a capital
increase in the absorbing
company.
1.5 Legal Effective Date of Date of filing with the Normally date of completion
Integration Commercial Registry, of the asset transfer.
providing registration takes
place within two months
following the filing.


1.6 Can merger/asset sale be Compulsory retrospective No.
retrospectively effective accounting effect to the
from tax and accounting latest of: (i) the date
perspectives? on which the merged
companies started to belong
If yes, what is deadline for to the same group; and (ii)
filing merger application? the first day of the fiscal
year in which the merger
takes place.
The public deed of merger
must be filed with the
Commercial Registry by the
last day of the fiscal year in
which retrospective effect is
desired.
1.7 Is a creditor’s notice period Yes. The corporate resolution No. However, creditors’
required? to merge must be publicly consent is required for legal
announced and the merging transfer of their debts.
If yes, are there mandatory companies will satisfy
waiting periods? the creditors who oppose
the merger during one
month following the public
announcement.
1.8 How long will integration Approximately four months. One to two months.
statements)?

1.1 Local integration method Merger by absorption or Contractual asset transfer.
combination (the latter is Legal demerger also
rarely used). available.
sister?
law?
1.4 What financial statements No independent valuation None.
or independent valuations required but the merger
are required? plan must be examined by
the auditors of the parent
Are there audit requirements and subsidiary.
for both companies?

Section 10

1.5 Legal Effective Date of Date of registration by Normally date of completion
Integration Companies Registration of the asset transfer.
Office.
1.6 Can merger/asset sale be Yes. There is no deadline, No.
retrospectively effective however, for tax purposes
from tax and accounting the book year in which the
perspectives? merger is executed cannot
be more than 18 months,
If yes, what is deadline for ie, the beginning of the last
filing merger application? book year for the subsidiary
to the end of the parent
company’s book year.
1.7 Is a creditor’s notice period Yes, approximately two No.
required? months.
waiting periods?
1.8 How long will integration Four to five months, One to two months,
take from finalization of depending on employee depending on employee
plan and all information consultation. consultation.
statements)?

sister?
1.3 Do all rights and obligations Yes. The parties may choose
transfer by operation of between: (i) special
law? procedure for the transfer of
a business under the Merger
Act, whereby the assets and
liabilities will be transferred
by operation of law; or (ii)
ordinary sale transaction,
where no assets or liabilities
will be transferred by
operation of law.


1.4 What financial statements Audited statutory accounts, None, however the business
or independent valuations not older than six months. should be transferred for
are required? fair market value. Transfer
If material changes in the at book value is possible in
Are there audit requirements financial position of the certain circumstances.
for both companies? legal entities involved have
occurred since the last
balance sheet, a new interim
balance sheet has to be
drawn up.
1.5 Legal Effective Date of Date of registration of the In the case of a transfer
Integration merger by the trade register. under the Merger Act, the
date of registration of the
transfer. In the case of an
ordinary sale transaction,
usually on the date of
completion of the asset
transfer.
1.6 Can merger/asset sale be Yes, up to six months. Yes, up to six months.
perspectives?
1.7 Is a creditor’s notice period Yes. After the entry of the No waiting periods with
required? merger in the trade register, respect to creditors.
the merging companies However, in case of a
If yes, are there mandatory must publish three calls transfer under the Merger
waiting periods? to the creditors in the Act, consent from contract
Swiss Official Gazette of parties of transferred
Commerce, unless an contracts should be
independent auditor’s report obtained. In addition, the
confirms there is no risk transferring company
for creditors, and informs remains jointly liable for the
creditors of their right to liabilities transferred with a
request sureties for their business as a going concern
claims within a three- for a period of three years.
month period (following the
effective date of merger). In the case of an ordinary
sale transaction, consent
from creditors of transferred
debts and contract parties
to transferred contracts
should be obtained.
1.8 How long will integration Two to four months (shorter Time needed to inform and
take from finalization of in the case of a simplified possibly consult with the
plan and all information merger). employees, ie, approximately
provided (including financial two to three weeks.
statements)?

Section 10

1.2 Preferred pre-integration Parent/subsidiary or brother/ N/A. The asset transfer
structure, for example: sister (simplified procedure). process does not vary
parent/subsidiary or brother/ according to the relationship
sister? between the buying and
selling entity. Also, the
preferred structure will need
to be determined taking into
consideration the nature of
the assets to be transferred.
1.3 Do all rights and obligations Yes. Yes.
1.4 What financial statements Financial statements: a None.
or independent valuations financial cut-off date must
are required? be determined for merger
purposes. This cannot be
Are there audit requirements older than six months than
for both companies? the date of the merger
agreement. Balance sheets
as at that date must be
prepared and be used as
the basis of a report to be
prepared by a local certified
public accountant.
Audit requirement will
apply if the local entities
are subject to independent
audit under Turkish law.
1.5 Legal Effective Date of Date of the registration with Date of execution of the
Integration the Trade Registry. asset transfer agreement,
unless registration with the
Trade Registry is required.
perspectives?
1.7 Is a creditor’s notice period No. No.
required?
waiting periods?


1.8 How long will integration Usually approximately one This depends on the
take from finalization of and a half to two months. nature of the assets to be
plan and all information Registration may take transferred and the transfer
provided (including financial three or four business days formalities. Where none of
statements)? from submission of the the assets are registered
documents, depending on before specific registries/
the workload of the Trade governmental authorities,
Registry. the process usually takes
one to one and a half
months.
UNITED KINGDOM Merger Asset Sale

available in the UK.
of arrangement or
reconstruction rarely used.
sister?
1.4 What financial statements N/A. None, however the business
or independent valuations should be transferred for fair
are required? market value.
for both companies?
Integration of the asset transfer.
perspectives?
1.7 Is a creditor’s notice period N/A. No. However, creditors’
required? consent required for the
If yes, are there mandatory legal transfer of their debts.
waiting periods?
1.8 How long will integration N/A. Approximately one to two
take from finalization of months, depending on
plan and all information employee consultation.
statements)?

Section 10

sister?
1.3 Do all rights and obligations No. Obligations under No, unless the sale
transfer by operation of law? agreements may be constitutes a “Transfer of
transferred by execution Integral Property Complex.”
of separate assignment
agreements and usually
requires consent of the
counterparty.
Some items of the
disappearing company are
non-transferable, such as
licenses, certain types of
approvals (permissions and
authorizations issued by
governmental bodies or
special organizations) and
certificates of compliance.
1.4 What financial statements None. None.
or independent valuations
are required?
for both companies?
1.5 Legal Effective Date of In the case of a merger of Normally, date of

Integration one company into another completion of asset transfer.
— date of exclusion of the
disappearing company from
the Unified State Register
of Legal Entities, Private
Entrepreneurs and Public
Organizations.
Where two companies
merge together to create
a new company — date of
state registration of the new
company.


perspectives?
1.7 Is a creditor’s notice period Yes, a two-month period No.
required? following the publication of
a notice by the disappearing
If yes, are there mandatory company.
waiting periods?
1.8 How long will integration Approximately six to eight Approximately four to five
take from finalization of months. months.
statements)?

sister?
1.4 What financial statements Requirements depend on Valuation only required if
or independent valuations the form of the merging real estate or vehicles are
are required? companies, but generally being transferred.
good practice to have an
Are there audit requirements independent valuation for
for both companies? both the surviving company
and the disappearing
company.
1.5 Legal Effective Date of Around three to four months Normally date of completion
Integration after the date of registration of asset transfer for
of the resolution in the movables and non registered
Commercial Register or later assets, however registered
if a creditor objects. assets (eg, real estate
properties, vehicles, IP
rights) will be transferred
upon registration in the
name of the transferee at
the relevant registry.

Section 10

1.6 Can merger/asset sale be Accounting: yes. Accounting: yes.
from tax and accounting Tax: the United Arab Tax: the United Arab
perspectives? Emirates currently has Emirates currently has
no federal tax law. Tax no federal tax laws. Tax
If yes, what is deadline for legislation does exist legislation does exist
filing merger application? in individual Emirates; in individual Emirates;
however, in practice, it is however, in practice, it is
rarely applied. To date, only rarely applied. To date, only
oil, gas and petrochemical oil, gas and petrochemical
companies and branch companies and branch
offices of foreign banks offices of foreign banks
are required to pay taxes. are required to pay taxes.
The UAE will be levying The UAE will be levying
VAT at 5% effective on a VAT at 5% effective on a
federal basis from 1 January federal basis from 1 January
2018. The precise operation 2018. The precise operation
of UAE VAT is still to be of UAE VAT is still to be
determined. determined.
1.7 Is a creditor’s notice period The notice period depends No.
required? on the jurisdiction in the
UAE (free zone or mainland)
If yes, are there mandatory where the merger will be
waiting periods? effected. In the mainland,
a creditor can object
within 30 days of the date
of the notice that the
surviving company or the
disappearing company has
given to its creditors. Time
periods vary between free
zones but are generally
between one and three
months.
1.8 How long will integration Approximately three to four Approximately two to four
take from finalization of months. months (depending on
plan and all information the nature of assets being
provided (including financial transferred).
statements)?

Section 11
Baker McKenzie Offices Worldwide
Baker McKenzie Offices and Associated Firms

Offices marked with an asterisk (*) are associated firms.
Argentina Buenos Aires Australia Sydney

Baker & McKenzie Sociedad Civil Baker & McKenzie
Avenida Leandro N. Alem 1110, Piso 13 Level 27, A.M.P. Centre
Buenos Aires C1001AAT 50 Bridge Street
Argentina Sydney, NSW 2000
Australia
Tel: +54 11 4310 2200
Fax: +54 11 4310 2299 Tel: +61 2 9225 0200
Fax: +61 2 9225 1595
Australia Brisbane
Baker & McKenzie Austria Vienna
Level 8, 175 Eagle Street Diwok Hermann Petsche Rechtsanwälte
Brisbane QLD 4000 LLP & Co KG
Australia Schottenring 25
1010 Vienna
Tel: +61 7 3069 6200
Austria
Fax: +61 7 3069 6201
Tel: +43 1 24 250
Fax: +43 1 24 250 600
Australia Melbourne
Baker & McKenzie
Azerbaijan Baku
Level 19, 181 William Street
Melbourne VIC 3000 Baker & McKenzie - CIS, Limited
Australia The Landmark Building
90A Nizami Street
Tel: +61 3 9617 4200 Baku AZ1010
Fax: +61 3 9614 2103 Azerbaijan
Tel: +994 12 497 18 01
Fax: +994 12 497 18 05

Section 11
Bahrain Manama Brazil Porto Alegre*

Baker & McKenzie Limited Trench, Rossi e Watanabe Advogados
18th Floor West Tower, Bahrain Financial Av. Borges de Medeiros, 2233 - 4º andar
Harbour Porto Alegre - RS - Brasil - CEP 90110-150
P.O. Box 11981 Brazil
Manama
Tel: +55 51 3220 0900
Kingdom of Bahrain
Fax: +55 51 3220 0901
Belgium Antwerp
Brazil Rio de Janeiro*
Baker & McKenzie CVBA/SCRL
Trench, Rossi e Watanabe Advogados
Meir 24
Av. Rio Branco, 1 - 19º andar - (Ed. RB1 -
2000 Antwerp
Setor B)
Belgium
Rio de Janeiro - RJ - Brasil - CEP 20090-
Tel: +32 3 213 40 40 003
Fax: +32 3 213 40 45 Brazil
Tel: +55 21 2206 4900
Belgium Brussels Fax: +55 21 2206 4949
Baker & McKenzie CVBA/SCRL
Louizalaan 149 Avenue Louise Brazil São Paulo*
11th Floor
1050 Brussels
Rua Arquiteto Olavo Redig de Campos
Belgium
105 - 31 floor - (Ed. EZ Towers - Torre A)
Tel: +32 2 639 36 11 São Paulo - SP - Brasil - CEP 04711-904
Fax: +32 2 639 36 99 Brazil
Tel: +55 11 3048 6800
Brazil Brasília* Fax: +55 11 5506 3455
SAF/S Quadra 02, Canada Toronto
Lote 04, Sala 203
Baker & McKenzie LLP
Ed. Comercial Via Esplanada
Barristers & Solicitors
Brasília - DF - Brasil - CEP 70070-600
Brookfield Place, Bay/Wellington Tower
Brazil
181 Bay Street, Suite 2100
Tel: +55 61 2102 5000 Toronto, Ontario M5J 2T3
Fax: +55 61 3323 3312 Canada
Tel: +1 416 863 1221
Fax: +1 416 863 6275

Chile Santiago Colombia Bogota

Baker & McKenzie Ltda. Baker & McKenzie S.A.S.
Avenida Andrés Bello 2457 Piso 19, Avenue 82 No. 10-62 6th Floor
Providencia Bogota
Santiago Colombia
Chile
Tel: +57 1 634 1500/644 9595
Tel: +56 2 2367 7000 Fax: +57 1 376 2211
Fax: +56 2 2362 9876
Czech Republic Prague
China Beijing Baker & McKenzie, s.r.o., advokátní
Baker & McKenzie kancelár
Suite 3401, China World Office 2 Klimentská 46
China World Trade Center 110 02 Prague 1
1 Jianguomenwai Dajie Czech Republic
Beijing 100004
Tel: +420 236 045 001
China
Fax: +420 236 045 055
Tel: +86 10 6535 3800
Fax: +86 10 6505 2309 Egypt Cairo*
Helmy, Hamza and Partners
China Hong Kong - SAR Nile City Building, North Tower
Baker & McKenzie 21st Floor 2005C, Cornich El Nil Ramlet
14th Floor, Hutchison House Beaulac
10 Harcourt Road, Central Cairo
Hong Kong SAR Egypt
China
Tel: +20 2 2461 9301
Tel: +852 2846 1888 Fax: +20 2 2461 9302
Fax: +852 2845 0476
France Paris
China Shanghai Baker & McKenzie SCP
Baker & McKenzie 1 rue Paul Baudry
Unit 1601, Jin Mao Tower 75008 Paris
88 Century Avenue, Pudong France
Shanghai 200121
Tel: +33 1 4417 5300
China
Fax: +33 1 4417 4575
Tel: +86 21 6105 8558
Fax: +86 21 5047 0020

Section 11
Germany Berlin Germany Munich

Baker & McKenzie Baker & McKenzie
Partnerschaft von Rechtsanwälten, Partnerschaft von Rechtsanwälten,
Wirtschaftsprüfern und Steuerberatern Wirtschaftsprüfern und Steuerberatern
mbB mbB
Friedrichstraße 88/Unter den Linden Theatinerstrasse 23
10117 Berlin 80333 Munich
Germany Germany
Tel.: +49 30 2 20 02 810 Tel: +49 89 55 23 80
Fax: +49 30 2 20 02 81 199 Fax: +49 89 55 23 8 199
Germany Dusseldorf Hungary Budapest

Baker & McKenzie Kajtár Takács Hegymegi-Barakonyi
Partnerschaft von Rechtsanwälten, Baker & McKenzie Ügyvédi Iroda
Wirtschaftsprüfern und Steuerberatern Dorottya utca 6.
mbB 1051 Budapest
Neuer Zollhof 2 Hungary
40221 Dusseldorf
Tel: +36 1 302 3330
Germany
Fax: +36 1 302 3331
Tel: +49 211 3 11 16 0
Fax: +49 211 3 11 16 199 Indonesia Jakarta*
Hadiputranto, Hadinoto & Partners
Germany Frankfurt The Indonesia Stock Exchange Building
Baker & McKenzie Tower II, 21st Floor
Partnerschaft von Rechtsanwälten, Sudirman Central Business District
Wirtschaftsprüfern und Steuerberatern Jl. Jendral Sudirman Kav. 52-53
mbB Jakarta 12190
Bethmannstrasse 50-54 Indonesia
60311 Frankfurt/Main
Tel: +62 21 2960 8888
Germany
Fax: +62 21 2960 8999
Tel: +49 69 2 99 08 0
Fax: +49 69 2 99 08 108 Italy Milan
Studio Professionale Associato a Baker &
McKenzie
Piazza Meda, 3
20121 Milan
Italy
Tel: +39 02 76231 1
Fax: +39 02 7623 1620

Italy Rome Malaysia Kuala Lumpur*

Studio Professionale Associato Wong & Partners
a Baker & McKenzie Level 21, The Gardens South Tower
Viale di Villa Massimo, 57 Mid Valley City
00161 Rome Lingkaran Syed Putra
Italy Kuala Lumpur 59200
Malaysia
Tel: +39 06 44 06 31
Fax: +39 06 4406 3306 Tel: +603 2298 7888
Fax: +603 2282 2669
Japan Tokyo
Baker & McKenzie (Gaikokuho Joint Mexico Guadalajara
Enterprise) Baker & McKenzie Abogados, S.C.
Ark Hills Sengokuyama Mori Tower, 28th Av. Paseo Royal Country 4596
Floor Torre Cube 2, 16th Floor
1-9-10 Roppongi, Minato-ku Fracc. Puerta de Hierro
Tokyo 106-0032 Zapopan, Jalisco 45116
Japan Mexico
Tel: +81 3 6271 9900 Tel: +52 33 3848 5300
Fax: +81 3 5549 7720 Fax: +52 33 3848 5399
Kazakhstan Almaty Mexico Juarez

Baker & McKenzie - CIS, Limited Baker & McKenzie Abogados, S.C.
Samal Towers, 8th Floor P.O. Box 9338 El Paso, TX 79995
97 Zholdasbekov Street P.T. de la República 3304, Piso 1
Almaty Samal-2, 050051 Juarez, Chihuahua 32330
Kazakhstan Mexico
Tel: +7 727 330 05 00 Tel: +52 656 629 1300
Fax: +7 727 258 40 00 Fax: +52 656 629 1399
Luxembourg Mexico Mexico City

Baker & McKenzie Baker & McKenzie Abogados, S.C.
10 - 12 Boulevard Roosevelt Edificio Virreyes
2450 Luxembourg Pedregal 24, Piso 12
Luxembourg Lomas Virreyes/Col. Molino del Rey
Mexico, D.F. 11040
Tel.: +352 26 18 44 1
Mexico
Fax: + 352 26 18 44 99
Tel: +52 55 5279 2900
Fax: +52 55 5279 2999

Section 11
Mexico Monterrey Netherlands Amsterdam

Baker & McKenzie Abogados, S.C. Baker & McKenzie Amsterdam N.V.
Oficinas en el Parque Claude Debussylaan 54
Torre Baker & McKenzie, Piso 10 1082 MD Amsterdam
Blvd. Antonio L. Rodríguez 1884 Pte. P.O. Box 2720
Monterrey, N.L. 64650 1000 CS Amsterdam
Mexico The Netherlands
Tel: +52 81 8399 1300 Tel: +31 20 551 7555
Fax: +52 81 8399 1399 Fax: +31 20 626 7949
Mexico Tijuana Peru Lima*

Baker & McKenzie Abogados, S.C. Estudio Echecopar
P.O. Box 1205 Chula Vista, CA 91912 Av. De la Floresta 497
Blvd. Agua Caliente 10611, Piso 1 Piso 5 San Borja
Tijuana, B.C. 22420 Lima 41
Mexico Peru
Tel: +51 1 618 8500
Tel: +52 664 633 4300
Fax: +51 1 372 7171/372 7374
Fax: +52 664 633 4399
Philippines Manila*
Morocco Casablanca
Quisumbing Torres
Baker & McKenzie Maroc SARL
12th Floor, Net One Center
Ghandi Mall - Immeuble 9
26th Street Corner 3rd Avenue
Boulevard Ghandi
Crescent Park West
20380 Casablanca
Bonifacio Global City
Morocco
Taguig City 1634
Tel: +212 522 77 95 95 Philippines
Fax: +212 522 77 95 96
Tel: +63 2 819 4700
Fax: +63 2 816 0080
Myanmar Yangon
Baker & McKenzie Yangon Poland Warsaw
1203 12th Floor Sakura Tower
Baker & McKenzie Krzyzowski i
339 Bogyoke Aung San Road
Wspólnicy Spólka Komandytowa
Kyauktada Township
Rondo ONZ 1
Yangon
Warsaw 00-124
Myanmar
Poland
Tel: +95 1 255 056
Tel: +48 22 445 3100
Fax: +48 22 445 3200

Qatar Doha Saudi Arabia Jeddah*

Baker & McKenzie Legal Advisors, Abdulaziz I. Al-Ajlan &
Al Fardan Office Tower, 8th Floor Partners, in association with Baker &
Al Funduq 61 McKenzie Limited
PO Box 31316 Bin Sulaiman Center, 6th Floor,
Doha Office No. 606
Qatar Prince Sultan Street and Rawdah Street
Intersection
Tel: +974 4410 1817
Al-Khalidiyah District
Fax: +974 4410 1500
P.O. Box 128224
Jeddah 21362
Russia Moscow Saudi Arabia
Baker & McKenzie - CIS, Limited
Tel: + 966 12 606 6200
White Gardens
Fax: + 966 12 692 8001
9 Lesnaya Street
Moscow 125047
Russia Saudi Arabia Riyadh*
Legal Advisors, Abdulaziz I. Al-Ajlan &
Tel: +7 495 787 2700
Partners, in association with Baker &
Fax: +7 495 787 2701
McKenzie Limited
Olayan Complex, Tower II, 3rd Floor
Russia St. Petersburg Al Ahsa Street, Malaz
Baker & McKenzie - CIS, Limited P.O. Box 4288
BolloevCenter, 2nd Floor Riyadh 11491
4A Grivtsova Lane Saudi Arabia
St. Petersburg 190000
Tel: +966 11 265 8900
Russia
Fax: +966 11 265 8999
Tel: +7 812 303 9000
Fax: +7 812 325 6013 Singapore*
Baker & McKenzie.Wong & Leow
8 Marina Boulevard
#05-01 Marina Bay Financial Centre
Tower 1
Singapore 018981
Singapore
Tel: +65 6338 1888
Fax: +65 6337 5100

Section 11
South Africa Johannesburg Sweden Stockholm

Baker & McKenzie Johannesburg Baker & McKenzie Advokatbyrå KB
Block 1 Commerce Square P.O. Box 180
39 Rivonia Road Vasagatan 7, Floor 8
Sandhurst Stockholm SE-101 23
Sandton Sweden
Johannesburg 2196
Tel: +46 8 566 177 00
South Africa
Fax: +46 8 566 177 99
Tel: +27 11 911 4300
Fax: +27 11 784 2855 Switzerland Geneva
Baker & McKenzie Geneva
South Korea Seoul Rue Pedro-Meylan 5
Baker & McKenzie LLP Geneva 1208
Foreign Legal Consultant Office Switzerland
17/F, Two IFC
Tel: +41 22 707 9800
10 Gukjegeumyung-ro
Fax: +41 22 707 9801
Yeongdeungpo-gu
Seoul 150-945
South Korea Switzerland Zurich
Baker & McKenzie Zurich
Tel: +82 2 6137 6800
Holbeinstrasse 30
Fax: +82 2 6137 9433
Zurich 8034
Switzerland
Spain Barcelona
Tel: +41 44 384 14 14
Baker & McKenzie Barcelona S.L.P.
Fax: +41 44 384 12 84
Avda. Diagonal, 652
Edif. D, 8th floor
Barcelona 08034 Taiwan Taipei
Spain Baker & McKenzie, Taipei
15/F, 168 Dunhua North Road
Tel: +34 93 206 0820
Taipei 10548
Fax: +34 93 205 4959
Taiwan
Spain Madrid Tel: +886 2 2712 6151

Fax: +886 2 2712 8292
Baker & McKenzie Madrid S.L.P.
Paseo de la Castellana, 92
Madrid 28046
Spain
Tel: +34 91 230 4500
Fax: +34 91 391 5149

Thailand Bangkok United Arab Emirates Dubai*

Baker & McKenzie Ltd. Baker & McKenzie Habib Al Mulla
25th Floor, Abdulrahim Place Level 14, O14 Tower
990 Rama IV Road Al Abraj Street, Business Bay
Bangkok 10500 P.O. Box 2268
Thailand Dubai
United Arab Emirates
Tel: +66 2636 2000
Fax: +66 2636 2111 Tel: +971 4 423 0000
Fax: +971 4 447 9777
Turkey Istanbul* and
Esin Attorney Partnership
Level 3, Tower 1
Ebulula Mardin Cad., Gül Sok. No. 2
Al Fattan Currency House, DIFC
Maya Park Tower 2, Akatlar-Beşiktaş
P.O. Box 2268
Istanbul 34335
Dubai
Turkey
Tel: + 90 212 339 8100
Tel: +971 4 423 0005
Fax: + 90 212 339 8181
Fax: +971 4 447 9777
Ukraine Kyiv
United Kingdom Belfast
Baker & McKenzie - CIS, Limited
Renaissance Business Center
City Quays One, 7 Clarendon Road
24 Bulvarno-Kudriavska (Vorovskoho)
Belfast BT1 3BG
Street
United Kingdom
Kyiv 01601
Ukraine Tel: +44 28 9555 5000
Tel: +380 44 590 0101
Fax: +380 44 590 0110 United Kingdom London
United Arab Emirates 100 New Bridge Street
Abu Dhabi* London EC4V 6JA
United Kingdom
Baker & McKenzie Habib Al Mulla
Level 8, Al Sila Tower Tel: +44 20 7919 1000
Abu Dhabi Global Market Square, Al Fax: +44 20 7919 1999
Maryah Island
P.O. Box 44980
Abu Dhabi
Tel: +971 2 696 1200
Fax: +971 2 676 6477

Section 11
United States Chicago United States New York

Baker & McKenzie LLP Baker & McKenzie LLP
300 East Randolph Street, Suite 5000 452 Fifth Avenue
Chicago, Illinois 60601 New York, New York 10018
United States United States
Tel: +1 312 861 8000 Tel: +1 212 626 4100
Fax: +1 312 861 2899 Fax: +1 212 310 1600
United States Dallas United States Palo Alto

Baker & McKenzie LLP Baker & McKenzie LLP
2300 Trammell Crow Center 660 Hansen Way
2001 Ross Avenue Palo Alto, California 94304
Dallas, Texas 75201 United States
United States
Tel: +1 650 856 2400
Tel: +1 214 978 3000 Fax: +1 650 856 9299
Fax: +1 214 978 3099
United States San Francisco
United States Houston Baker & McKenzie LLP
Baker & McKenzie LLP Two Embarcadero Center, 11th Floor
700 Louisiana, Suite 3000 San Francisco, California 94111
Houston, Texas 77002 United States
United States
Tel: +1 415 576 3000
Tel: +1 713 427 5000 Fax: +1 415 576 3099
Fax: +1 713 427 5099
United States Washington, DC
United States Miami Baker & McKenzie LLP
Baker & McKenzie LLP 815 Connecticut Avenue, N.W.
Sabadell Financial Center Washington, District of Columbia 20006
1111 Brickell Avenue, Suite 1700 United States
Miami, Florida 33131
Tel: +1 202 452 7000
United States
Fax: +1 202 452 7074
Tel: +1 305 789 8900
Fax: +1 305 789 8953

Venezuela Caracas
Baker & McKenzie SC
Centro Bancaribe
Intersección Avenida Principal de Las
Mercedes con inicio de Calle París,
Urbanización Las Mercedes
Caracas 1060
Venezuela
Tel: +58 212 276 5111
Fax: +58 212 993 0818; 993 9049
Venezuela Valencia
Baker & McKenzie SC
Urbanización La Alegria
P.O. Box 1155
Valencia Estado Carabobo
Venezuela
Tel: +58 241 824 8711
Fax: +58 241 824 6166
Vietnam Hanoi
Baker & McKenzie (Vietnam) Ltd.(Hanoi)
Unit 1001, 10th floor, Indochina Plaza
Hanoi
241 Xuan Thuy Street, Cau Giay District
Hanoi 10000
Vietnam
Tel: +84 4 3825 1428
Fax: +84 4 3825 1432
Vietnam Ho Chi Minh City

Baker & McKenzie (Vietnam) Ltd. (HCMC)
12th Floor, Saigon Tower
29 Le Duan Blvd.
District 1
Ho Chi Minh City
Vietnam
Tel: +84 8 3829 5585
Fax: +84 8 3829 5618

Baker McKenzie helps clients overcome the challenges

of competing in the global economy.
We solve complex legal problems across borders and practice

areas. Our unique culture, developed over 65 years, enables
our 13,000 people to understand local markets and navigate
multiple jurisdictions, working together as trusted colleagues
and friends to instill confidence in our clients.
2017
Post-Acquisition
© 2017 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with
member law firms around the world. In accordance with the common terminology used in professional
service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a
law firm. Similarly, reference to an “office” means an office of any such law firm.
This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not
guarantee a similar outcome. Baker & McKenzie Global Services LLC / 300 E. Randolph Street / Chicago,
IL 60601, USA / +1 312 861 8800.

Post Acquisition Handbook - Baker and Mackenzie - 2017

Uploaded by

Copyright:

Available Formats

Post Acquisition Handbook - Baker and Mackenzie - 2017

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Post Acquisition Handbook - Baker and Mackenzie - 2017

Uploaded by

Copyright:

Available Formats

Baker McKenzie helps clients overcome the challenges

Post-Acquisition Integration Handbook

We solve complex legal problems across borders and practice

© 2017 Baker & McKenzie LLP

It is a time of relentless volatility and ambiguity, with the complexities of

Experience has taught us that the key to developing an effective post-acquisition

1 An Open and Collaborative Process

1.1 Identification of Key Strategic Objectives

1.2 Information Gathering Phase

1.3 Preliminary Analysis and Overall Plan Development

1.4 Initial Evaluation of Overall Plan

1.5 Development of Detailed Step Lists

1.6 Approval of Detailed Step List

1.7 Implementation of Steps

and management to help identify what needs to be done to complete a particular

2 Substantive Legal and Tax Issues

2.1 Due Diligence

upon reaching deal certainty. It typically becomes increasingly difficult to gather

2.2 Evaluating Local Statutory Mergers vs. Asset Transfers

functionally equivalent to a merger from a local tax perspective. Whether a particular

2.3 Transferring Assets

2.4 Novating and Assigning Contracts

2.5 Preserving Tax Attributes

2.6 Minimizing Corporate and Shareholder Level Taxes

2.7 Severance and Restructuring Costs

2.8 Tax Optimization Strategies

2.9 Pre-Integration Share Transfers

A further benefit to a parent/subsidiary or brother/sister relationship being

2.10 Employment Law Considerations

2.11 Losing Directors and Officers

2.12 Waiting Periods and Notices

2.13 Corporate Compliance Status

2.14 Branches, Business Registrations and Subsidiaries

2.15 Corporate Approvals

2.16 Post-Integration Matters

2.17 Communication Plan

Initial Steps Develop Overall Integration Plan

Define Interim Complete Integration / Remedial Steps Develop Business Model

Finalize & Preparation of

1. Identification of Strategic and Key Objectives

2. Key Information Gathering

2.11. Do any of the relevant entities have beneficial tax rulings?

3. Proposed Day One Action items

4. Local Due Diligence Review

configured to begin, processing transactions for the newly integrated entities.

6. Regulatory and Antitrust Issues

6.7. Has the merging/transferring entity received any governmental subsidies,

7. Compliance Risks and Programs

B. Planning the Integration

• impact on employees and employee representative bodies

10. Transferring Assets

12. Employee Benefits/Equity Awards

13. Intellectual Property

13.3. Evaluate tax optimization strategies arising in connection with restructuring

14. Director, Officer and Other Management Positions

15. Claims and Litigation

16. Banking, Finance and Treasury

17. Data Protection

18. Third-Party Trading Model and Relationships

6.7. Has the merging/transferring entity received any governmental subsidies,

13.3. Evaluate tax optimization strategies arising in connection with restructuring