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UK corporate tax reform and the changes brought about by last month’s Budget will have a major impact on M&A transactions. Gary Richards of Weil, Gotshal & Manges, London, outlines some of the key issues

The Singapore government's proposed tax reform package has met with approval from tax advisers who believe that it will go some way towards boosting the country's ailing economy and increasing foreign investment. The Economic Review Committee (ERC), which was set up by the government in December 2001, announced a series of proposed changes on April 11 this year. The government will announce whether it intends to adopt these proposals, which are part of the report called Restructuring the Tax system for Growth and Job Creation, on May 3 when the budget is delivered.

Allen & Overy has poached a Haarmann Hemmelrath partner to set up a tax practice in Germany and increased its tax partnership in Paris. Eugen Bogenschütz is joining the Frankfurt office as head of German tax. Bogenschütz, who was a partner at Haarmann Hemmelrath for eight years, and previously worked at Price Waterhouse, concentrates on cross-border M&A transactions and restructurings. Allen & Overy approached Bogenschütz over six months ago with the offer, at a time when he was not actively seeking to leave Haarmann Hemmelrath, and he was tempted by the opportunity of building a tax practice from scratch as well as the firm's international reach. He explained:

In a departure from the trend for the big four professional services firms poaching lawyers for their tax groups, Baker & McKenzie has won a tax partner from KPMG in Los Angeles. Michael Lebovitz joined the Palo Alto office on May 1 but will work with his existing Southern California client base for three days a week. He will be instrumental in helping Baker & McKenzie increase its South California work. Lebovitz specializes in business and tax planning in connection with cross-border investment to and from the US and other countries. While at KPMG he spent some time as the national partner in charge of international tax services for its information, communication and entertainment practice and its healthcare and life sciences practice.

Last month he gave businesses a sweetener by announcing tax measures to aid both big and small business. But now, UK chancellor of the Exchequer, Gordon Brown's budget has received a backlash of criticism from corporates angry at once again being forced to fund public spending.

DATE TYPE OF DEAL VALUE TARGET ACQUIRER/ ISSUER HOLDER/ UNDERWITER ADVISERS TO TARGET ADVISERS TO ACQUIRER/ ISSUER ADVISERS TO HOLDER/ UNDERWRITER 22/3/02 recommended offer EUR 8.5 billion ($7.63 billion) Innogy (UK) RWE (Germany) n/a Linklaters, London, Mike Hardwick, Keith Wilson Allen & Overy, London, David Lewis, Kevin Cummings; Hengeler Mueller n/a 22/3/02 spin-off and transfer of manaagment £2 billion ($2.9 billion) n/a Guy Hands (UK) Nomura International (Japan); Terra Firma Group (New Zealand) n/a Linklaters, London, Jan Birtwell, Neal Todd, Conor Hurley; Germany, Martin Krause; in-house, Colin Rowlinson, Chris Barnes SJ Berwin & Co ,London, Mark Hainsworth; Andersen/Garretts, London, John Cuillinance, John Maxey, Darren Docker, Judith Powell; Germany, Klaus Brinckmann 1/4/02 acquisition $1.1 billion Trendwest Resorts Inc (US) Cendant Corp (US) n/a Heller, Ehrman, White & McAuliffe, New York, Pamela Charles Brown, Teresa Maloney Skadden, Arps, Slate, Meagher & Flom, New York, James Tandler, Katherine Bristor n/a 2/4/02 acquisition $5.04 billion Enterprise Oil (UK) Royal Dutch/Shell Group (Anglo/ Dutch) n/a Herbert Smith, London, Janette Sawden Slaughter and May, London, Martin Walker, Sara Luder n/a 5/4/02 merger $662 million n/a DSP Group Inc's IP licensing division (US) Parthus Technologies plc (Ireland) n/a Morrison & Foerster, New York, Steven Ruskin, Marjorie Elkin, Steven Meier; Freshfields Bruckhaus Deringer; Arthur Cox Hale and Dorr, Boston, Bill Caporizzo, Kimberly Wethly, Bill Benjamin; KPMG 5/4/02 lease financing $3 billion 54 aircraft Crossair Limited, now known as SWISS (Switzerland) n/a n/a Debevoise & Plimpton, Frankfurt, Friedrich Hey; New York, Burt Rosen, Robert Staffaroni n/a 8/4/02 debt deal £740 million ($1.07 billion) n/a Eurotunnel (UK/ France) Agent banks n/a Herbert Smith, London, David Martin, Nikol Davies n/a 11/4/02 merger $685 million Herbalife International Inc (US) Whitney & Co; Golden Gate Capital (US) n/a Gibson, Dunn & Crutcher, Los Angeles, Paul Issler, Elizabeth Bluestein, David West, Cathy Cleveland Kirkland & Ellis, Chicago, Jeffrey Sheffield n/a 12/4/02 acquisition £875 million ($1.27 billion) 1869 pubs Enterprise Inns plc (UK) Laurel Pub Holdings Ltd (UK) Freshfields, Bruckhaus Deringer London, Francis Sandison, Susan Porter, Stephanie Young CMS Cameron McKenna, London, Simon Meredith, Alison Hughes n/a 16/4/02 bond offering $7.3 billion n/a Morgan Stanley Dean Witter & Co (US) Morgan Stanley & Co Inc (US) n/a n/a Davis Polk & Wardwell, New York, Po Sit, Chrisian Wimpissinger 17/4/02 demerger undisclosed n/a Halfords (UK) Boots plc (UK) n/a n/a Slaughter and May, London, Tony Beare, Ed Denny

On January 1 2002, a number of tax amendments were approved by Congress following several months of analysis. The tax amendments had been subject to great debate, since it was intended to increase tax revenues by ending the value-added tax (VAT) exemption on a variety of items, especially food and medicines.

European Commission continues state aid probes

From April 1 2002, all UK companies are eligible for enhanced relief for expenditure on R&D. Enhanced relief was previously confined to small and medium-sized companies (SMEs). The new tax credit is calculated according to volume of expenditure and is available to large companies based on their total qualifying expenditure where that exceeds £25,000 per year.

Under certain conditions, article 5(1) of EU Council Directive 90/435/EEC of July 23 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different member states, provides for the elimination of withholding taxes on dividends paid between companies settled in the EU. In a decision rendered on October 4 2001 (Case C-294/99 Athinaki Zytopoiia AE), the European Court of Justice (ECJ) ruled that the tax to which certain Greek companies are subject on some profit distributions was a withholding tax within the meaning of this provision. Such a decision may call into question the validity of the equalization tax (précompte) due on certain dividend payments by French companies.