1. TAX ISSUES The various ways in which taxes may play a role in mergers and acquisitions. It was seen that the tax impact of a transaction is a function of the accounting treatment applied to the deal, which in turn is regulated by tax laws. Tax law changes, have reduced the initiative to merge with and acquire companies simply to realize tax gains.

2. TAX ISSUES Some firms may use their tax benefits as assets in establishing the correct price that they might command in the market place. For this reason, tax considerations are important as both the motivation for a transaction and the valuation of the company.

3. TAX ISSUES Clearly, taxes must be carefully examined in any merger, acquisition, or LBO because they are important in evaluating the target firm and the overall cost of the acquisition. Some potential sellers will not sell unless they receive the desired tax consequence.

4. TAX ISSUES Recent research has shown that tax benefits from net operating loss carryforwards and unused tax credit positively affect returns of companies involved in tax – free acquisitions. This research has also shown that capital gains and asset basis step – up also affect returns of companies involved in taxable acquisitions

5. TAX ISSUES There is also evidence that taxes play an important role in LBOs. However, readers should be cautious in interpreting these research results. Simply demonstrating that taxes are a determinant of returns does not mean that tax effects are the prime reason for a deal.

6. TAX ISSUES These studies have shown that taxes are one of several factors that influence returns. It would be reasonable to conclude that taxes normally play a secondary but still important role in determining mergers and acquisitions.

7. FINANCIAL ACCOUNTING Accounting are accounted for in US using the purchase method, which is consistent with the way they are accounted for in most nations. Under this method the cost of an acquisition are allocated to specific assets acquired according to their fair market value. Any excess cost that cannot be allocated to specific assets is then treated as goodwill.

8. PURCHASE METHOD Under purchase method, the transaction is recorded at its fair market value. Fair market value is defined as the total amount paid for the acquisition, including related costs of the acquisition, such as legal and accounting fees, broker’s commission, and the like. If the acquisition is consummated with stock, then the acquisition price is based on the fair market value of the stock.

9. PURCHASE METHOD Assets that are acquired are assigned part of the overall cost of the acquisition based on their fair market value as of the acquisition. Any excess value that cannot be allocated to specific assets is then assigned to GOODWILL. Under the purchase method the acquiring company is entitled to income of the acquired company only from the date of purchase. Prior RE of the acquired company aren’t allowed to be brought forward to the consolidated entity.

10. PURCHASE METHOD Although the purchase method does permit the creation of tax – deductible expenses, the choice of method did not itself create any value. The accounting treatment does not produce benefits that would affect the combined firm’s cash flows.

11. TAX FREE TRANSACTION A tax – free transaction is known as a tax – free reorganization. The term tax – free is a misnomer because the tax is not eliminated but will be realized when a later taxable transaction occurs. There are several different types of tax – free reorganizations, type A, B, C, and D.

12. TYPE A REORGANIZATION This type allows the buyer to use either voting stock or non-voting stock, common stock or preferred stock, or even other securities. Type A must fulfill the continuity of interest requirement. That is, the shareholders in the acquired company must receive enough stock in the acquiring firm that they have a continuing financial interest in the buyer.

13. TYPE B REORGANIZATION Type B requires that the acquiring corporation use mainly in own voting common stock as the consideration for purchase of the target corporation’s common stock. Cash must constitute no more than 20% of the total consideration. Type A&B, transactions are viewed, as merely a continuation of the original corporate entities, these transaction are not taxed because they are not considered true sales.

14. TYPE C REORGANIZATION In this type, the acquiring corporation must purchase 80%of the fair market value of the target’s assets. As a result, the target company usually must liquidate. One advantage is that the acquiring company may not need to receive approval of its shareholders in such an asset purchase.

15. TYPE D REORGANIZATION There are two kinds of type D, which are covers acquisition and the others covers restructuring. In acquisition, the acquiring company receives 80% of the stock in the target in exchange for voting stock in the acquiring company, In restructuring, covers spinoffs, splitups, and splitoffs.

16. TAX ISSUES in Indonesia Peraturan Menteri Keuangan Nomor 43/PMK.03/2008 tentang Penggunaan Nilai Buku atas Pengalihan Harta dalam rangka Penggabungan, Peleburan atau Pemekaran Usaha yang mulai berlaku sejak tanggal 13 Maret 2008. Direktur Jenderal Pajak No. PER-28/PJ/2008

17. CASE STUDY