A Study on accounting process and tax issues for reverse-acquisition －A case study of the merger on listed company
Date Issued
2011
Date
2011
Author(s)
Hsu, Sue-Fen
Abstract
The major considerations in the merger and acquisition activities are usually strategy, technology, funding, synergy, valuation, laws and regulations and so on. The accounting processes, such as fair value valuation and goodwill appraisal, will affect the financial reporting of the consolidated group as well as its recognition of profit and loss in the future. The tax laws and related explanations will affect the merger and acquisition cost which the company and the shareholders must undertake. Both accounting process and tax cost are significant factors when evaluating a merger and acquisition proposal although they are not the first priority. For the success of merger and acquisition, the companies have to understand about tax issues and accounting processes so that an appropriate model can be planned and arranged during the process of merger and acquisition.
The first objective of this study focuses on accounting processes and tax issues in reverse merger and acquisition cases. The accounting processes are mainly about fair value valuation of net assets, recognition and appraisal of goodwill, criteria of judging reverse merger and acquisition. Through the analysis and investigation on reverse merger and acquisition cases, we find the existing regulations are not sound enough for companies to comply with and therefore result in inconsistency in financial reporting. The second objective focuses on taxation in reverse merger and acquisition cases. By analyzing Business Mergers and Acquisitions Act, Income Tax Act, related explanations issued by Ministry of Finance and some related reports, we have further explored on controversies such as corporate income taxes of the acquiring company and personal income taxes of the target company’s shareholders. We find that lack of specific and detailed regulations on reverse merger and acquisition may cause dispute and confusion of double taxation. This study attempts to shed light on the inconsistency in financial reporting and provide some insight about the issue of double taxation in order to help enterprises to plan carefully when executing reverse merger and acquisition activities.
Subjects
merger & acquisition (M&A)
reverse-acquisition
tax cost
accounting process
Type
thesis
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