Should a M&A advisor be informed about the Tax landscape in Estonia?Tax aspects are of high importance when buying a business. Your advisor needs to be up to date with the tax framework that applies to M&A transactions in Estonia. Here we mention some aspects that you need to consider when acquiring a company and setting up your tax structure in Estonia. Tax-efficient acquisition structuring is important to prevent possible tax claims after the acquisition date. Effective planning and structuring can help you avoid complicated legal and regulatory issues in cross-border acquisitions. We provide relevant tax knowledge ourselves in M&A transactions or work with tax specialists that bring in the required taxation knowledge.
In case of an asset deal, an excess of the purchase price over the fair value of the assets being transferred represents the goodwill, which can be capitalized by the buyer and depreciated for tax purposes over a period of five years. Qualified accounting is required to determine the true fair value as this has possible effects on depreciation and hence actual taxes to be paid.
The development of the transfer pricing regime in Estonia has an impact on the M&A market. Following the global trends, the Estonian Revenue Administration relies on indirect taxes and implements new compliance rules and tax audits in accordance with the transfer pricing (TP) provisions. Since the implementation of a new TP regime in Estonia, TP is becoming one of the main focuses of inquiries by the tax authorities. Hence, you will need to document very well how this TP structure and methodology has been determined so it can be explained to the tax authorities in a clear way.