The Stress Test Every Business Needs

9Is tax a full partner in building resilience and driving value?

Bridget Walsh and Erica Lawee

In a recent acquisition, a multinational company (MNC) felt the pain of involving tax expertise too late in the deal process. Their deal teams submitted a nonbinding offer without doing proper tax due diligence. The offer was at the top end of the bid prices received, and the company was selected as a preferred bidder. Two days prior to submitting the binding offer, the tax teams were brought in and discovered the target used a tax structure for its international business that was incompatible with the company’s structure, and that materially decreased the deal’s internal rate of return (IRR). The final offer was submitted with a clause that the company refused to acquire an interest in the international business, given the way it was structured. Consequently, they were removed from the auction process. Not only did this create tension with the target, but it also created friction between the tax department and the deal team, which lost what had otherwise appeared to be a lucrative deal.

Key tax issues affecting business today

Across the global corporate landscape, tax is an increasingly important business issue in deal making and capital allocation decisions. Tax itself is becoming a disruptive factor, with domestic and international tax reforms, and rising international political and media interest in MNC tax affairs. Tax should move from the back office to the boardroom once ...