Ask an Expert: Buy Now, Pay Later: Deferred Consideration in Share Sales (Tax Journal)

In her recent Tax Journal article, Goodwin partner Dulcie Daly explains why a deferred consideration in the form of earnouts or milestone payments are popular in a variety of M&A transactions: They help bridge value gaps while providing a purchaser with added comfort concerning future performance.

In the life sciences sector, for example, milestone payments allow early-stage companies to achieve liquidity on the basis that sellers accept consideration payments tied to the success of future clinical trials, regulatory approvals, or product sales. Similarly, purchasers are willing to acquire pre-profit technology companies if a significant portion of the sale consideration takes the form of an earnout contingent on the future performance of the business.

But the tax treatment of deferred consideration is complex and can differ depending on the economics of the transaction and the characteristics of the shareholders. You’ll need to work through the UK tax implications for each seller and consider whether any changes to the transaction structure are needed. The threshold question for determining the tax treatment of deferred consideration for any UK shareholder is whether the value of such consideration is known or capable of being quantified at completion (ascertainable), or whether the value is dependent on future circumstances, meaning it can only be determined post completion (unascertainable).

Read the full analysis: “Ask an expert: Buy now, pay later: deferred consideration in share sales” (Tax Journal)