This article first appeared as a Financial Services Regulatory Alert on www.dlapiper.com.
At the risk of oversimplification, the purchase price on an asset purchase agreement allocable to certain intangibles or goodwill is generally amortized over 15 years. The House tax bill proposes to allow the full purchase price (allocable to intangibles/goodwill) to be recovered immediately. Assuming the House version on “tax expensing” passes, the effective date of the legislation will be a critical factor in timing your M&A closings. For example, the effective date might be (i) the date the legislation is signed into law by the President-elect, (ii) retroactive to an earlier date, or (iii) a future date (e.g., all deals closed after 12/31/17). And although LatAm deals–commonly subject to local value added tax (VAT)–make asset purchases the exception, there is still the opportunity for a US buyer to plan carefully for the immediate recovery of the goodwill/intangible purchase price. For example, US tax law permits certain stock deals to be treated as asset deals permitting depreciation/amortization of the acquired assets, so please stayed tuned on further developments of the House tax proposals.
If passed into law, this expending provision will be a key driver in accelerating asset purchase deals of targets having significant intangibles or goodwill.
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