The year 2018 witnessed a number of restructuring arrangements that necessitated the merger or the acquisition of some businesses. On 10th January 2018, Milost Global Inc. announced it has closed the acquisition of 100% interest in Primewaterview Holdings Nigeria Limited for US$1.1billion. Zinox Technologies Limited also completed the acquisition of Konga in February 2018. Towards the end of 2018, the Board of Diamond Bank Plc also announced its proposed plan to merge with Access Bank Plc. The proposed merger would involve Access Bank acquiring the entire issued share capital of Diamond Bank in exchange for a combination of cash and shares in Access Bank.

For most acquisitions, a key component of the transaction would normally be the negotiation and execution of a Share Purchase Agreement (SPA). Since the purchase of shares constitutes the purchase of the target's business including all liabilities, the share purchase transaction involves far greater risk for the buyer than an asset purchase transaction. Hence, the share deal could easily become the buyer's worst nightmare where proper due diligence is not done to identify any historical tax liabilities of the target.

Consequently, it is important that the buyer conducts a thorough tax due diligence on the target and dedicates sufficient attention to the negotiation of specific terms of the SPA relating to representations and warranties, indemnities and other provisions relating to taxation to minimize the tax risk of the transaction.

This piece discusses the importance of the tax due diligence, tax clauses in the SPA and other relevant tax considerations in planning the share acquisition deal.

Key Considerations in Minimizing Tax Exposures under a Share Deal

Generally, share deals are simple, straightforward to execute and guarantees seamless transition of the business from the seller to the buyer. Share deal also provides lot of tax benefits for both the buyer and the seller. For example, the seller is not required to pay Capital Gains Tax (CGT) where it makes a gain from the sale of shares. Similarly, the buyer would not be liable to Value Added Tax (VAT). In addition, the Stamp Duties Act (SDA) exempts instruments of transfer of shares from payment of stamp duties.

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