Several advantages of buying shares appear below: the tosi rules are very complex and go beyond the scope of this article. It is particularly recommended that private business owners with more than one shareholder or those considering selling hybrids obtain external instructions on reducing risk areas and ensure that activities and sales are structured to minimize taxes and generate after-tax revenue. Some common tax pitfalls of an asset transaction are usually the responsibility of sellers. Sellers may primarily be subject to double taxation or amortization. Double taxation occurs on the sale of assets of C-capital companies, as the target entity is subject to tax education on the profit of the sale of its assets and shareholders will be subject to a new tax on the distribution of the net proceeds. Double taxation is also in the case of an S company if it was previously a C capital company, if it had profits incorporated at the time of the conversion and if the conversion took place within five years of the date of the transaction. Otherwise, companies and S partnerships are generally not subject to double taxation. In this second episode of our periodic series on taxes and sales contracts, we discuss the function that tax representations and guarantees fulfill in a share purchase agreement. Given the pace of changes introduced in both Polish and international legislation, the evolution of judicial decisions and inconsistencies in the decisions of the tax authorities, appropriate guarantees and compensation clauses covering the company`s tax accounts should be among the buyer`s priorities when negotiating the SGT`s terms and conditions.
Sub-taxes are real money and can seriously affect the profitability of the buyer`s investment. It is therefore advisable to include appropriate guarantees in share purchase contracts. In addition, the IRS deals with the sale of 100% of the interests in a taxed entity as a partnership as the sale of partnership shares to sellers (generally, capital gains processing except “hot assets”) and the acquisition of assets to the purchaser. This treatment offers buyers and sellers potentially the best of both worlds. The relative importance that a buyer retains of this function depends on the extent to which he is otherwise able to obtain comfort in these matters by his own duty of care. In many transactions, the buyer retains an audit firm to submit a full report on “quality of merit” and to pay close attention to the tax side. The target entity records the profits or losses resulting from the difference between the selling price assigned to the assets (usually negotiated by the parties in the asset sale contract) and the tax base of the assets on the basis of assets per asset.