Taxation is an important consideration for any company on the IPO path.
Taxation is an important consideration for any company on the IPO path. While going public will mean the loss of certain tax advantages, it also opens the doors to certain tax planning opportunities.
In making the transition to a public company, there are a number of tax requirements and rules that a private company would not have had to consider. At the same time, there are specific practices that no longer apply once your company goes public. It’s essential that a company do the preparation work well ahead of the public offering. Those that don’t prepare thoroughly for the transition could lose out on tax-saving opportunities or in more serious cases, face risk penalties.
On an ongoing basis, the company will need to have the internal capabilities to address its tax risks, as well as the resources to prepare quarterly and annual tax provisions. It will be important to have an effective tax reporting function to monitor on-going legislation and compliance matters.
The pre-IPO time frame represents the ideal opportunity to crystallize a number of tax-related issues. The first step is to conduct a complete review of your company’s tax position, the personal tax situation of individual stakeholders. This will enable you to pinpoint areas where you can enhance tax benefits prior to going public, as well as ensure that your company is structured in a tax efficient manner. For example, a private company with capital dividend, GRIP (general rate income pool) and/or RDTOH (refundable dividend tax on hand) accounts should consider using the account balances prior to going public in order to fully realize the tax benefits associated with them.
As part of the restructuring, it may be necessary to reorganize share capital or combine subsidiaries to remove certain assets prior to the public offering. It’s also important to do a thorough analysis of any potential impacts associated with the various commodity taxes, such as GST/HST, excise tax, retail sales tax and land transfer tax.
Some questions you should be asking include:
As a public company, there are also a number of fundamentals that change significantly. For example:
The importance of tax planning cannot be underestimated. In fact, some tax plans need to be implemented months before a public offering in order to optimize their inherent benefits. Advance planning not only helps to smooth the bumps along the way but also helps uncover important opportunities that could otherwise be lost.
KPMG in Canada released, "A Guide to Going Public", which outlines the challenges a company may face when going public, including the complex accounting rules and reporting requirements, pressures on time and resources, and managing new stakeholders (i.e., board, shareholders, and new management).
In particular, the section on tax considerations discusses:
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