Reverse merger: leveraged buyout and tax consolidation

The article analyses a reverse merger operation from an accounting, corporate and tax perspective. The analysis will also consider the implications related to the regulation on tax consolidation and to circular letter no. 6/E dated 30 March 2016 on leveraged buyout.

In order to better understand the situation at hand, the following case will be analysed: let’s suppose that Holding Spa, a company incorporated four years ago, has acquired – mostly by using third parties’ finance through a leveraged buyout operation – a 60% controlling interest in the company Beta Spa, which, in turn, controls the company Gamma Spa. Beta Spa and Gamma Spa adopt the tax consolidation.

As pointed out, the reverse merger represents an alternative way to reach the same situation as that achievable through the merger of a subsidiary into its parent company, but it is more efficient from an administrative perspective. As regards the accounting point of view, it must be considered that, according to the principle of substance over form, the final situation is similar in both types of operation. Moreover, while planning the operation, it is necessary to evaluate its suitability under the applicable tax regulation, in order to avoid incurring in future objections by the Revenue Office.