Asset acquisition, whether through direct purchase of goods or through mergers and acquisitions (M&A), presents several tax challenges in Brazil. The main issues involve business succession risks with joint liability regarding tax liabilities, complexity in tax assessment, and the management of tax credits.
Below, we list the top 5 tax issues identified in these operations:
1. Business Succession (Joint Liability): The acquirer of a commercial establishment may assume the taxes owed by the seller prior to the acquisition date, according to Article 133 of the CTN (National Tax Code). Liability may be subsidiary, if the seller continues to operate the activity, or full, if the seller ceases the activity or if the acquirer operates the same activity at the same location.
2. Management of Tax Credits: Currently, the acquisition of fixed assets generates ICMS and PIS/COFINS credits, but their use is installments over up to 48 months, impacting cash flow and the controls that must be maintained when there is a succession of companies with the same activity to prevent losses.
3. Gain from Advantageous Purchase (Goodwill): The Tax Authorities usually analyze entries related to premium and goodwill—which is the expectation of future profitability—with great scrutiny. They may require taxation of the operation when identifying a “gain from advantageous purchase” at the time of acquisition (before the actual realization of the gain), which creates legal uncertainty and disputes regarding the company’s ability to pay.
4. Risks in M&A (Price and Structure): The identification of tax credits to be utilized, or the existence of eventual tax liabilities, directly impacts the price and the structure of how values will be received by the company and/or the partners (e.g., earn-out, escrow account).
5. Capital Gains of Partners: When the sale is carried out by partners who are individuals or legal entities, the capital gain will form the tax base for IRPF (Individual Income Tax) or IRPJ/CSLL (Corporate Income Tax/Social Contribution). Often, only the nominal value invested is considered, ignoring the acquisition cost updated according to legislation, which increases the capital gain and, consequently, the taxes due.
To circumvent and avoid these problems, it is necessary to conduct a complete tax due diligence to identify hidden debts, errors in tax calculation, and the use of incorrect tax bases, as well as any tax credits that may be recovered in the future.
Furthermore, it is fundamental to plan the structure of the acquisition before the operation takes place, both regarding the values that will remain in the company and those that will be allocated to the partners.
