“It is very important to clearly define tax impacts in restructuring,” said Ph.D Le Khanh Lam, Deputy Director of DTL Auditing Company. He said with different restructuring movements and progresses occurred in different business forms, tax impacts will vary. If a company lacks full analysis in this impact, tax costs will affect the outcome of restructuring process to a certain extent. Giang Tu reports.
There are many different views of point on restructuring. What is your standpoint on restructuring? When should a company consider restructuring?
Restructuring is a series of actions or processes to help a problematic company to recreate critical values and maintain them in the near future to support it to continue with its activities to maximise the benefits for stakeholders.
A company may face problems from many different dimensions: from inside (unfit products and services, new customer requirements, unsuitable governance, etc) or from outside (economic crisis, inflation, macroeconomic policy changes, industry trend changes, etc). Depending on specific problems it is facing, order of problem-solving priority and chosen methods, it will go into analysing and making detailed plan corporate restructuring.
Is a company able to identify taxes and measure its impacts on reshuffling process?
From its chosen specific plans, the company can determine motivations, processes and transactions necessary to be taken in each phase to further analyse tax impacts (if any) on each step of implementation.
Tax effects may spread only in a narrow scale if the restructuring only focus on improving some localised contents like innovating products and services or cutting staff but they may also occur on a large scale if they choose to adopt an inclusive restructuring like selling assets and equity, changing in legal form, merging with other units, splitting up or dissolving, etc.
If restructuring occurs only in a narrow scope, the company may anticipate tax impacts. However, if shake-up is applied on a large scale and with complex nature, it must take vigilant steps and allocate appropriate resources to analyse full tax impacts. It is obvious that different restructuring purposes and processes will result in different tax effects.
With activities like selling assets and equity, changing in legal form, merging with other units, splitting up or dissolving, tax impacts may knock selling and buying enterprises, shareholders and possibly employees in two ore many companies, or even occur to many stakeholders like banks, partners and customers. Hence, tax impact researches must be carried out sufficiently, thoroughly and professionally in many different angles in order to make appropriate decisions on restructuring plans. Without adequate analysis, tax impacts may cause certain impacts on the process of restructuring.
Has the current tax law kept pace with restructuring activities?
In developed countries, restructuring is clearly defined in the laws and is a matter of business for long. In Vietnam, restructuring is a common term in recent times but tax policies start covering this activity. Specifically, Vietnam's tax laws have provisions on the handling of tax on the sale of assets and equity, changes in legal form, consolidation, merger, split-up or dissolution. However, given domestic and global economic evolution, restructuring tends to be increasingly complex and tax provisions thus need researching to cover all business operations and stakeholders.
In the current period, tax provisions related directly or indirectly to corporate restructuring are defined in many different tax laws, and a company will need time to collect, systemise and study these regulations completely. Hence, if competent authorities can put together these guidelines in a general consistent ruling, it will help the company study more easily and approach more quickly tax handling in reshuffling process. The act of collecting will also help authorities to update and revise regulations in force more frequently and more quickly.
So, what should a company do before and after restructuring?
Corporate restructuring usually occurs when a company encounter financial difficulties and business downsizing.
As shake-up largely relates to changes in way of thinking and corporate governance and requires time for study, analyse and select suitable movements, companies must cautiously go through the nature of business downsizings and define the order of priority before making major reformation.
Enhancing corporate production and business performance is our long-term objective and a life-time effort of a company. Therefore, in spite of obtaining certain results in the process of corporate restructuring, a company still always has to renovate and boost up its operations in the current competitive context if it wants to go further forward.
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