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Cross Border Mergers Acquisitions Thailand
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Cross Border Mergers Acquisitions Thailand

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PUGNATORIUS: International M&A experience combined with Thailand local know-how

PUGNATORIUS: International M&A experience combined with Thailand local know-how

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  • 1. Thailand cross-border acquisitions: Legal and tax aspects Thailand Emerges as Bright Spot in Mergers and Acquisitions • Southeast Asia's booming growth has turned it into a beacon for M&A activity across Asia.Thailand, is shining particularly brightly, as overseas firms are attracted by the country's growth story. That has helped propel the country, normally a quiet corner in the M&A universe, into the upper echelons of deal activity in Asia. And with Southeast Asia ticking closer to becoming a regional free-trade bloc, the number of deals involving Thailand is set to pick up. (Source: Wall Street Journal Asia, July 30, 2013) • PUGNATORIUS assists and supports international investors in cross- border acquisitions in Thailand during all four phases of the transaction: ✓Preparation, structuring and identifying of the target, ✓Due diligence, ✓Drafting and negotiation ✓Closing, signing and accomplishing of the deal • PUGNATORIUS assists Thai companies in their negotiations with foreign buyers and investors.
  • 2. The overall acquisition process - a general road map for M&A deals in Thailand and elsewhere Phase I Phase II Phase III Phase IV Identifying the target Designing the acquisition structure Commercial negotiations MOU or Term Sheet and Non-Disclosure Agreement Legal Due Diligence Tax Due Diligence Commercial Due Diligence and valuation Pre-approvals Defining the deal points Drafting of SPA Sale and Purchase Agreement Drafting of supporting documents Negotiation Closing Signing Transfer of shares, assets, money Post completion tasks Scope of legal services during the acquisition process • Assistance and local know-how to identify potential targets from the preparation of the long list to the short list • Definition and design of legal acquisition structure and pre-deal tax planning • Assistance regarding commercial aspects and price negotiations • Preparation and negotiation of MOU and Term Sheet • Comprehensive legal due diligence • Cross-border tax due diligence • Drafting and negotiation of purchase contract and supporting documents • Joint-venture and shareholders‘ agreements • Closing, signing, financing and registration • Repatriation and de-investment issues • ...
  • 3. The applicable legislation and policies for amalgamations and acquisitions in Thailand Acquisition of Thai limited company (Co. Ltd.) Acquisition of Thai public company (PLC.) Acquisition of Thai company listed at SET Stock Exchange of Thailand Acquisition of assets in a Thai company Civil and Commercial Code (Section 1238-1243 CCC) Public Limited Company Act 1992 (PLCA) Securities and Exchange Act 1992 (SEC Act) Rules and regulations of the SET Rules and regulations of the Securities Exchange Commission (SEC) Thai CCC Civil and Commercial Code Section 107 PLCA There is no squeeze-out concept under Thai laws. The general concept of an amalgamation is rarely achieved in praxis
  • 4. Tasks for the acquisition of half of the shares in a Thai limited company by and from a foreigner • Transfer of pro-rata foreign quota shares to buyer • Transfer of pro-rata Thai quota shares • Adjustment of financial and other arrangements with Thai shareholders • Joint Venture agreement between foreign shareholders • Adjustment of Bylaws, Articles of Association, etc. • Directors agreement, employ- ment agreement, capital increase as work permit re- quirement, etc. Thai Co. Ltd. Foreign shareholder Additional shareholder Thai shareholder Foreign buyer 48% 1% 51% Transfer 24.5% New Thai shareholder Transfer 25.5% Finance, etc. Joint Venture Director Bylaws Typical Case Study Guidance regarding the general legal framework for acquisitions in Thailand • Permission and reporting requirements for companies promoted by the Thailand BOI Board of Investment • Permissions by the IEAT Industrial Estates Authority of Thailand • Foreign Business Act (Alien Business Act) for foreign investments • Land Code restrictions for acquisitions of land owning companies • Survival of concessions and permissions in the acquisition process • Compliance with environment impact assessment (“EIA”) and health impact assessment (“HIA”). • Employment issues and local labor laws • IP management • Borrowings and liabilities • Disputes and litigations • ...
  • 5. Competition laws and anti-monopoly regulations in Thailand • Under the Trade Competition Act 1999 an acquisition requires the permission from the Trade Competition Board of Thailand, if it ✓creates a monopoly or ✓leads to unfair competition • Acquisition includes share deal, asset deal and amalgamation (merger) • Under the general policy of the Trade Competition Board this is given with ✓a market share of 50+% or a collective share of 75+% by the top three ✓and a turnover of more than THB 1 billion (individually respectively collectively). • A permission is typically granted, if the acquisition ✓promotes business, ✓is reasonably commercially necessary, ✓has no significant negative effect on the economy or the consumer. • The decision is typically made within 90 days after a valid application has been made. • PUGNATORIUS assists during the whole application process. What you see is not necessarily what you get when it comes to acquisitions in Southeast Asia. Thailand’s potential, however, is too great to ignore.
  • 6. Typical aspects and considerations of the acquisition tax planning Pre-Deal Phase Asset deal vs. share deal vs. other acquisitions Tax losses and tax credits Tax incentives under BOI promotion Existing tax risks and tax due diligence Closing Corporate / personal income taxation for buyer Corporate / personal income taxation for seller VAT, Special Business Tax and Stamp Duties Closing tax risks and documentation requirements Post-Acquisition Amortization aspects and depreciation of purchase price Tax treatment of financing structure Tax treatment of dividends, license fees, royalties, etc. Tax treatment for ultimate shareholder / repatriation Tools and modules for the tax efficient structuring of acquisitions involving Thai parties Use of acquisition vehicles Intermediate companies and treaty shopping Offshore holding Local Thai holding Debt push down Use of special procedures Debt or equity financing Entire or partial business transfer Tax losses carried forward, unused tax depreciation No group taxation in Thailand Use of special Thai legislation Section 74 Thai Revenue Code Ministerial Regulation Nr. 126 Royal Decree No. 10 ... and some more
  • 7. Which documents are subject to the acquisition due diligence - should be in the data room Company formation and previous share transfer instruments Others Financial statements Investment promotion by the BOI Board of Investment Taxation Company documents (Shareholders meeting, directors resolution, etc.) HR / Employment matters IP and licenses Commercial contracts (distribution agreements, etc.) and major assets Other contracts (leases, etc.) Inventory of available data and documents - Data room - DBD (Governmental company register) - Property search - Litigation search - Insolvency search - Other sources The findings and recommendations in the PUGNATORIUS due diligence report Legal compliance Special remarks / Post acquisition issues Contingent exposure issues / Risk assessment Accounting / audit / tax compliance Value factors / Valuation issues FBA compliance (regarding foreigner restrictions under Thai law) Representations and warranties in SPA sale and purchase agreement Other SPA implications Corporate governance Restructuring recommendations
  • 8. Underestimated legal hotspots of a Thai legal due diligence • Theft or loss of valuable intellectual property eased by careless handling of regulatory and compliance guidelines, including customer data, trademarks and patent infringements • Fraudulent payments to senior staff in untraceable cash, inflated payrolls and ghost employees, among others • Inadequate measures to prevent regulatory noncompliance, financial irregularities, computer crime and employee misconduct • Undisclosed commercial interests, whether directly owned or through family members or other nominees, which pose conflicts of interest • Bribery of public officials through fictitious subcontractors • Unpreparedness to plan and implement an asset recovery or loss mitigation strategy, including preparing reports for regulatory authorities, law enforcement and civil litigation • Vulnerability to regulatory and compliance breach, bribery, kickbacks, anti- competitive behavior and “pay-to-play” schemes involving governments. It is foolish when a foreign investor makes an acquisition in Thailand and leaves incumbents in place to run the business as if it was still their own. The target company must be fully adopted into the procedures and culture of the acquiring organization, to protect the key assets for which it was purchased.
  • 9. Investing in Thailand • Investing in Thailand - Some- times the water is deeper than it looks. • We are specialized to guide foreign investors through the red-tape requirements, legal hurdles and international tax structuring of their foreign in- vestments, trade operations or other business in Thailand and Southeast Asia. • We can assure the highest professional standards, level of availability and swift completion of challenging and demanding projects. www.PUGNATORIUS.com More Thailand Legal and Tax Guides at www.scribd.com/collections/4054603 www.scribd.com/doc/148931743
  • 10. European ASEAN Business Centre (EABC) 69 P PUGNATORIUS Ltd. 29th Floor, Central World Tower 999/9 Rama I Road, Pathumwan Bangkok 10330, Thailand Tel: 0066 22072647 Fax: 0066 22072657 E-mail: lawyers@pugnatorius.com Website: www.pugnatorius.com EABC Representative Dr. Ulrich Eder Rechtsanwalt, Steuerberater, Managing Director lawyers@pugnatorius.com Company Profile PUGNATORIUS is an independent law office based in Bangkok, Thailand. We provide international corporations, investors and law firms with premium legal and tax services relating to Thailand, Southeast Asia and offshore jurisdictions. We are specialized to guide foreign clients through the red-tape requirements, legal hurdles and international tax structuring of their foreign investments, trade operations, real estate developments or other business in Thailand and Southeast Asia. Products & Services ExpertadviceinforeigndirectinvestmentsinThaimanufacturing and service sectors and real estate developments. Gateway to investments in Myanmar and utilization of Thailand as investment hub for the ASEAN region. Implementation of cross- border tax planning strategies for overall tax mitigation and risk management. International tax advice and individually tailored tax planning solutions for corporate and private clients with the inclusion of offshore jurisdictions. Corporate asset protection and advanced financing solutions. Senior Management 1. Dr. Ulrich Eder, German lawyer and tax counsel, Managing Director