Compliance in a Transactions environment - Case study

Issue

In order to expand its activities in Europe, FoodCo acquired a European competitor through a highly leveraged cross-border acquisition.

The company asked PwC to review the impact of this acquisition on its Group tax accounts and the Effective Tax Rate of the Group going forward.

Approach

In view of achieving better control over tax accounting issues related to the cross-border acquisition,  the following methodology was applied:

• What were the tax related considerations of the acquisition?
• Identification and quantification of temporary differences and carry forwards
• Determination of the applicable enacted tax rates
• Valuation allowance consideration (recoverability test)
• Evaluation and measurement of the Uncertain Tax Positions
• Goodwill considerations upon acquisition
• Tax modelling and reporting considerations in periods subsequent to the acquisition

Recommendation

PwC’s review resulted in an advice to adjust the tax account balances and to adjust the goodwill amount (for a material amount) to be recognized in purchase accounting.

Results

Our above approach and recommendations resulted in a clear view on the Group’s Effective Tax Rate going forward.