Critical Tax Considerations for Mergers and Acquisitions

In the current Nigerian business environment, companies face the need to adopt effective strategies to maintain competitiveness, ensure growth, and enhance profitability. Business restructuring is one such strategy to achieve optimal performance. Inefficient business structures, coupled with external factors like poor infrastructure and adverse government policies, can pose significant challenges to companies. Additionally, regulatory requirements and legislations may necessitate business restructuring, as seen in the banking sector reforms and local content requirements in various industries.

Business restructuring can take various forms, from the outright sale of equity interest to mergers and acquisitions (M&A). Common restructuring forms in Nigeria include the sale or purchase of crown assets, business combinations (such as share purchase/acquisition, mergers, acquisitions, demergers, and asset/business spin-offs), and capital reorganization (including debt-to-equity conversion, capital reduction, share buyback, stock split, and stock consolidation). These restructuring activities may involve contractual agreements, legal structures, and statutory provisions.

Regardless of the motive behind business restructuring, it is crucial to consider various tax implications for a tax-efficient restructuring exercise. This article focuses on the key tax considerations for business restructuring, with an emphasis on M&A, which is a prevalent form of restructuring in Nigeria.

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