P2 seeks to enforce a global minimum income tax at an effective rate (‘𝐄𝐓𝐑’) of 15% for each country in which an in-scope MNE operates. When buying or selling a target company (‘𝐓𝐚𝐫𝐠𝐞𝐭’), parties should consider how to address P2 and allocate related risks in the share purchase agreement (‘𝐒𝐏𝐀’). In this Snippet, we highlight three P2 attention points in relation to SPAs.
Some jurisdictions (e.g. the Netherlands) have introduced secondary tax liabilities in their domestic P2 legislation pursuant to which other entities within the MNE group are jointly and severally liable for P2 top-up tax due in that jurisdiction. Such secondary tax liabilities may even apply to group entities located outside that jurisdiction. As is the case with secondary tax liabilities that may apply when purchasing a Target from a consolidated group for corporate income tax purposes, buyers should consider negotiating protection against secondary tax liabilities for pre-closing P2 top-up tax of the seller group. This is an attention point for buyers whenever the seller is an in-scope MNE group, irrespective of whether the buyer is itself an in-scope MNE.
In locked box deals, the seller conducts the Target’s operations for the risk and account of the buyer for the period between the effective date and completion. The Target’s financials are generally still reported in the seller group’s consolidated financial accounts until completion. Accordingly, for P2 purposes, the Target’s income and taxes are still taken into account at seller group level. When selling a Target in a locked box deal, MNE sellers should therefore be aware that P2 top-up tax may arise prior to completion due to the Target and should consider negotiating protection to recover such P2 top-up tax from the buyer.
Consideration should be given to which party is responsible for handling P2 disputes concerning pre-closing periods. If the buyer is responsible, it should be provided access to the relevant information. An attention point in this context is that the P2 ETR is generally determined on a jurisdictional basis which means that the Target’s P2 status up until completion may depend on other seller group entities in the same country. Buyers may therefore require information from the seller with respect to other seller group entities outside the deal perimeter. It is expected that the post-closing period during which sellers and buyers must collaborate will become longer due to P2.
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