A buyer acquiring a target with subsidiaries in the Netherlands, Luxembourg and the United States is rarely undone by the headline purchase price. The damage usually surfaces months later, in a withholding tax assessment nobody modelled or a holding company a tax authority refuses to recognise. Sound M&A tax planning is the discipline of finding those exposures before signing, not after — and on cross-border deals the gap between a clean structure and an expensive one is often a single overlooked clause. The pitfalls below are the ones our attorneys and tax advisors see most often, and the points at which ambitious deals most frequently stall.
Treating tax due diligence as a box to tick
On many transactions, tax due diligence is run late, scoped narrowly, and read by no one who can act on it. That is where the first losses are written. A target’s historic exposures — unpaid payroll taxes, aggressive transfer pricing positions, VAT misclassifications, or an undisclosed permanent establishment (a taxable presence created in a country where the group never intended to be taxed) — transfer to the buyer in a share deal unless they are contractually carved out. Reading the report is not enough; the findings have to feed the price, the warranties, and the structure simultaneously.
The cross-border dimension multiplies the work. A finding that looks minor under Dutch law may be material under US rules, and a reserve that satisfies one tax authority may invite scrutiny from another. WVT runs diligence across jurisdictions in parallel rather than in sequence, so a Luxembourg financing position and a US earnings-and-profits question are assessed against each other before the numbers are locked.
Share deal versus asset deal: deciding by reflex
Buyers tend to want an asset deal — a clean step-up in the tax basis of the assets, future depreciation, and no inherited history. Sellers tend to want a share deal, often because a participation exemption lets them dispose of shares with little or no tax on the gain. Choosing by reflex, before modelling both, is a recurring and costly error in M&A tax planning.
The right answer turns on detail: whether the jurisdiction allows a basis step-up at all, whether real estate transfer tax or VAT applies to an asset transfer, and whether valuable tax attributes such as carried-forward losses survive the change of ownership. Many countries restrict or cancel loss carry-forwards on a change of control, so a buyer pricing in those losses may be paying for an asset that evaporates at completion. The structure also shapes the seller’s net position, which is why it belongs in the negotiation rather than in a post-signing tax memo.
Underestimating withholding tax and treaty access
Few items derail cross-border returns as quietly as withholding tax — a deduction at source on dividends, interest or royalties flowing between group companies. A structure that performs on a pre-tax basis can lose materially once leakage on intra-group flows is modelled. Acquirers routinely assume a double tax treaty (a bilateral agreement that reduces or eliminates that withholding) will apply, then discover at the worst moment that they cannot access it.
Treaty relief is conditional. Anti-abuse rules such as the OECD’s principal purpose test — adopted across the treaty network through the Multilateral Instrument — deny benefits where obtaining the treaty advantage was a principal purpose of an arrangement. A holding company inserted purely to capture a lower rate, with no people and no decision-making of its own, is precisely the structure these rules target. Planning the financing and dividend route through jurisdictions with genuine treaty access, and confirming that access in advance, is what separates a durable structure from one built to be challenged.
Building holding structures with no substance
The intermediate holding company remains a workhorse of international structuring, and also the single biggest source of post-deal disappointment. Authorities across the EU and beyond now look through entities that exist only on paper. Under the EU’s anti-tax-avoidance rules and the proposed shell-company regime — the so-called Unshell Directive (ATAD 3) — an entity lacking minimum substance can be denied treaty benefits and directive relief, with its income taxed as if the company were not there.
Substance is no longer satisfied by a registered address and an annual board minute. It means local directors with real authority, decisions genuinely taken in the jurisdiction, qualified staff or outsourced functions that are actually performed there, and a bank account operated locally. For a private equity buyer planning to hold an asset for several years, designing that substance into the structure from day one — rather than retrofitting it under audit — is the difference between a defensible position and a contingent liability sitting in the fund.
Ignoring Pillar Two and the global minimum tax
Acquirers building a group that crosses the EUR 750 million consolidated revenue threshold now inherit a layer of complexity that earlier deals never faced. The OECD’s Pillar Two rules impose a 15% global minimum effective tax rate, and a target’s low-taxed income can trigger a top-up charge once it joins the buyer’s group. A structure that was efficient for a smaller standalone target can become a compliance and cash-tax burden inside a large multinational, including new filing obligations of the kind streamlined by DAC9. Modelling the post-acquisition effective tax rate, not just the target’s historic rate, is now part of competent diligence.
Forgetting the day after completion
Tax risk does not close at signing; a significant share of it is created by the integration that follows. Migrating intellectual property, refinancing the target with intra-group debt, or merging entities are all taxable events if handled without planning. Interest deductibility caps under the anti-tax-avoidance framework limit how much of an acquisition’s financing cost can actually be deducted, and an exit charge can apply when assets or functions move out of a jurisdiction. The most expensive surprises in M&A tax planning are frequently authored in the first hundred days after the deal closes, by integration teams working without a tax map.
A short, written post-merger integration plan — sequencing the steps, naming the charges each one triggers, and timing them deliberately — prevents most of this. It is inexpensive to produce before completion and very expensive to reconstruct afterwards.
How to keep the structure defensible
The common thread across these pitfalls is timing: tax is brought in too late to change anything. The deals that hold up are the ones where the structure, the diligence findings and the financing plan are designed together, early, by advisers who can see all the relevant jurisdictions at once. WVT’s corporate tax services and international taxation teams are built to work that way — in parallel across borders, before terms are fixed rather than after. For a fuller view of where cross-border planning stands for US acquirers, our podcast on international tax planning for US businesses in 2026 is a useful starting point.
If a transaction is on the horizon, the practical step is to involve tax counsel before the letter of intent is signed — while the structure is still a choice rather than a constraint.
Frequently asked questions
What is M&A tax planning?
M&A tax planning is the structuring of a merger or acquisition to manage the tax cost and risk on both sides of the deal. It covers the choice between a share and asset deal, the acquisition and financing structure, withholding tax and treaty access, the treatment of the target’s historic exposures, and the tax consequences of integrating the business afterwards. On cross-border deals it spans every jurisdiction the target touches.
Is a share deal or an asset deal better for tax?
The answer depends on the jurisdiction and on which side you sit. Asset deals usually give the buyer a step-up in tax basis and future depreciation, while share deals often let the seller use a participation exemption to dispose of shares with little tax. Real estate transfer tax, VAT, and the survival of loss carry-forwards all shift the balance, so both routes should be modelled before negotiating.
Why does substance matter in M&A holding structures?
Substance determines whether a holding company is respected for tax purposes at all. Without local directors, genuine decision-making and real activity, anti-abuse rules and the proposed Unshell Directive can deny treaty benefits and tax the entity’s income as if it did not exist. For buyers planning to hold an asset for years, weak substance is a contingent liability that surfaces under audit, often long after completion.
How does Pillar Two affect an acquisition?
Pillar Two applies a 15% global minimum effective tax rate to groups above EUR 750 million in consolidated revenue. When a low-taxed target joins such a group, its income can trigger a top-up charge and new filing obligations that did not exist on a standalone basis. Acquirers should model the post-acquisition effective tax rate of the combined group, not just the target’s historic rate, during diligence.
When should tax advisers be involved in a deal?
Tax advisers should be engaged before the letter of intent, while the structure is still a choice rather than a constraint. Bringing them in after signing means diligence findings cannot feed the price, the structure is fixed, and most planning options have closed. Early involvement lets the structure, the warranties and the financing plan be designed together — which is where durable, defensible deals come from.
