In an exclusive interaction with Adlin Pertishya Jebaraj, Correspondent of Finance Outlook India, Gaurav Makhijani, Head of Tax (North India and Gujarat) at Rodl & Partner India, shares key insights on the tax implications of cross-border mergers and acquisitions. With over 14 years of experience in corporate and international taxation, he explains how tax considerations have become critical to structuring deals and managing post-transaction risks. From treaty interpretation and indirect transfer rules to capital gains and digital taxation, Gaurav highlights major regulatory challenges. He also discusses how India’s alignment with global tax frameworks is shaping future cross-border M&A strategies.
How do you see the cross-border Mergers and Acquisitions from a taxation point of view?
In the new world order and today’s business context, Mergers and Acquisitions (M&A) have become an important strategic tool for businesses. M&A is prominent in many situation e.g., when a business is looking for a market entry and want to have a base at the time of entry, for accelerating growth in existing market, gaining access to technology and talent, etc. At their core, M&A deals are driven by commercial goals and expected returns for investors. Taxation plays a critical role in determining the success of these outcomes. In cross-border M&A, tax considerations become even more prominent. Since such transactions span multiple jurisdictions bringing into play issues like double taxation, treaty interpretation, transfer pricing, and opportunities for tax optimization. A well-structured transaction can significantly enhance post-deal value whereas, poor planning may lead to unexpected tax exposures or compliance hurdles. I have personally seen transactions which have fallen through solely due to unresolved tax complexities. A sound tax strategy aligned with both domestic and international tax framework is essential. I would even say that in a cross-border M&A, tax and commercial strategies must go hand in hand.
What are the most important tax considerations in organizing a merger and acquisitions transaction in India?
One of the first tax related decisions in any M&A transaction in India would probably be on the structure. Here, one would consider whether to structure the deal as a share purchase or an asset acquisition. Each option has distinct implications in terms of capital gains, stamp duty, and the ability to carry forward tax losses. Share deals may be simpler and more efficient for sellers, while asset deals can offer buyers a step-up in asset values and future depreciation benefits. This of course depends on various factors. Next in line would be, Goods and Service Tax (GST, the famous Indian VAT). This also plays a role particularly in asset deals where transitional credits and input tax eligibility must be analyzed in detail. When looking at a cross-border transactions in India, it would be extremely important to review the capital gains or other payments (including withholding tax obligation), requiring careful treaty analysis. This is true even where transactions is between two non-residents. Indirect transfer (where shares of an entity which are transferred is situated outside India which in-turn derives its values from India) has been subject to tax litigation in India. The famous case of Vodafone Supreme Court case of 2011 involved indirect transfer. The issue has such a huge impact, that there was even a retrospective tax amendment made to negate, said Supreme Court decision. Next in line for domestic as well as cross border M&A would be a time taking but important task of tax due diligence. This is crucial to identify any legacy tax liabilities, pending disputes, or compliance lapses. In the overall process, adherence to other Indian laws such as Companies Act, and FEMA and its connection with tax law is vital. Planning the potential exit route from the outset also helps with long-term efficiency. Additionally, Indian tax law offers tax-neutral routes like amalgamations or demergers, provided specific conditions are met.
What are the biggest tax concerns in post-merger integration?
The first major task in post-merger integration is alignment of policies and systems wherein tax is again one of the critical component. Reconciling accounting methods and policies and transfer pricing is essential. Mismatches in tax positions or inconsistent treatment of similar items across entities can result in compliance issues or disputes. Treatment of tax losses is often looked at by the tax authority in great detail. Under Indian tax law, specific conditions must be met to carry forward and utilize losses post-merger; failure to comply could mean losing valuable tax benefits from such losses. Additionally, from a GST perspective, realigning supply chains, updating registration details, and managing transitional input credits can pose challenges and are important concerns.
What digital tax solutions would you suggest for the continuous Mergers and Acquisitions tax transition?
Digital tax tools can significantly ease the M&A transition process, particularly for cross-border deals. An integrated ERP system equipped with treaty databases, withholding tax calculators, and compliance dashboards helps streamline tax reporting and decision-making across jurisdictions. Transfer pricing tools that automate benchmarking and documentation play a vital role in maintaining arm’s length pricing and avoiding disputes. We also see many start-ups worldwide offering custom and foreign trade policy related support using technologies. Data analytics platforms are useful for identifying risk areas, monitoring historical positions, and integrating tax-related metrics across entities. Then, we also now see workflow automation systems especially those linked with the company’s ERP that may help in ensuring proper tracking of approvals, documentation, and audit trails. These solutions improve compliance and provide better visibility and control during the post-deal phase.
Also Read: India's New Tax Blueprint: Clarity, Compliance & Confidence for Tomorrow's Taxpayer
Which sectors in India experience the most complicated tax issues in Mergers and Acquisitions?
Each sector has its own tax issues in M&A and therefore has to be looked at differently. Sector such as infrastructure and large manufacturing involving real estate in my personal view requires special attention as one has to look at stamp duty impact, capital gains on land and property transfers (in addition to complex land title and due diligence), valuation and GST considerations. There are also legacy issues with such businesses. Then there are sectors such as finance, insurance, oil and gas, mining, which are heavily regulated and while dealing with tax, knowledge of such regulations and special tax treatment that may be emanating out of such regulations are also to be considered. In the pharmaceutical and healthcare industries, tax complications often arise due to R&D benefits, cross-border IP transfers, and the classification of technical services. The IP tax challenge is also relevant for tech and digital business.
How does overdue tax accounting impact post-merger financial statements?
Accurate and timely tax accounting is essential for preparing reliable post-merger financial statements. When the acquired company has overdue taxes whether due to unrecorded liabilities, unresolved disputes, or delayed filings these can lead to unanticipated provisions and adjustments after the merger, directly affecting reported profits and shareholder value. Such tax exposures may require restating the opening balance sheet of the merged entity, reducing net worth or triggering additional disclosures. Deferred tax assets and liabilities must also be reassessed based on the combined business structure and updated assumptions. In cases where the merging entities follow different tax accounting policies, areas like revenue recognition or provisioning practices may need to be harmonized. Thorough tax due diligence and proactive accounting alignment are critical to avoid unpleasant surprises and ensure transparency in financial reporting.
How do you think India's changing international tax settlements are influencing inbound/outbound Mergers and Acquisitions?
India’s growing network of tax treaties and participation in global forums reflects a maturing tax environment. While these changes add layers of compliance, they also signal stability and alignment with global best practices ultimately encouraging more responsible and well-planned cross-border M&A. We earlier saw many investments came to India through Mauritius and Singapore route primarily due to the favorable tax treaty network. This led to high tax litigation in India. The times have changed since then and India’s evolving international tax landscape is playing a significant role in shaping both inbound and outbound M&A activity. The shift toward greater transparency, alignment with OECD BEPS standards and court and authorities following OECD and well recognized international tax commentaries are giving the required comfort. We also at the same time see that treaty benefits are now subject to tests like Principal Purpose Test (PPT), making tax structuring more substance-driven and less treaty-reliant. For inbound investments, clarity around indirect transfer rules, the phasing out of dividend distribution tax (DDT), and the introduction of lower tax regimes with special exemption and deduction has made law easy and less litigative. On the outbound side, Indian multinationals are now more cautious in structuring acquisitions abroad due to stricter CFC (Controlled Foreign Company) monitoring and limitation on interest deductions.
About the Author
Gaurav Makhijani, a Chartered Accountant with a postgraduate degree in Business Finance from Symbiosis University, Pune, has over 14 years of experience in corporate and international taxation. Currently Head of Tax (North India and Gujarat) at Rödl & Partner India, he advises on corporate tax strategy, M&A, cross-border structuring, and tax litigation. He has represented clients before tribunals and courts, including the Supreme Court, and regularly contributes to professional journals and media. Gaurav authored the Direct Tax segment for Bloomsbury’s Desk Referencer and speaks at forums hosted by ICAI, trade bodies, law schools, and Indian Embassies. Prior to Rödl, he worked with Deloitte and PwC. He also possesses elementary to intermediate German proficiency, enabling effective engagement in international assignments.
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