Exit Readiness - Dutch Tax Services
For private equity investors, exit value is maximized long before a sale process begins. Early assessment and optimization of the tax profile and capital structure, combined with proactive identification and mitigation of tax risks, enhances deal certainty, protects valuation and strengthens buyer confidence.
In today’s transaction environment, buyers conduct thorough due diligence under compressed timelines, and identified risks are quickly reflected in price adjustments, conditions or execution delays. Exit readiness is, therefore, not a final step in the process but a value protection strategy implemented well in advance of a sale.
A&M Tax Approach
A&M Tax supports shareholders and management in preparing portfolio companies for exit by:
- Proactively identifying the value of potential tax benefits and cash-like items (including exposures) and mitigating tax risks ahead of buy-side due diligence
- Assessing historical structuring decisions and capital structures under buyer scrutiny
- Strengthening documentation and defensibility of key tax positions, including safeguarding tax attributes
- Obtaining tax insurance for uncertain tax positions and/or tax rulings.
Our focus is clear: enhance deal certainty and safeguard equity value at exit, while actively preserving and optimizing tax attributes to drive value creation, promote smoother deal execution and foster greater investor confidence. The following two illustrative examples demonstrate why an exit-readiness trajectory is more of a must than a nice-to-have.
Transfer Pricing
Transfer Pricing (TP) risks are typically excluded from Warranty & Indemnity (W&I) insurance unless robust documentation is in place. Standard W&I policies usually carve out transfer pricing and other tax exposures when due diligence is limited, which can lead to exclusions or valuation pressure. If a TP exclusion applies, buyers often require a specific indemnity from the seller, which undermines a so-called clean exit. Conversely, when a well-designed TP framework is thoroughly documented and aligned with actual conduct, insurers may provide affirmative coverage, thereby enhancing deal certainty and reducing negotiation friction.
Operational Tax Risks
In a buy-side diligence engagement, parties may identify a material corporate income tax (“CIT”) exposure arising from outdated loss positions. For example, a company may have reported losses in its FY24 CIT return to reduce its taxable income. However, due diligence may reveal that these losses have already been fully utilized and should not have been applied to the FY24 CIT return. If the tax authority has not yet finalized the return and issued a final tax assessment, it could determine that the losses were incorrectly applied. As a result, the tax authorities could adjust the reported tax in the FY24 CIT return. This could result in a material additional CIT liability in the future, potentially affecting the purchase price of the shares. This example underscores how tax compliance issues, including customs and other indirect tax exposures, can directly influence transaction outcomes.
To learn how A&M Tax could help your organization navigate exit readiness, please contact Marc Sanders or Frank Buitenwerf.
