Tax Due Diligence for Merger and Acquisition (M&A) BDO Indonesia

2

WHY M&A?

• Succession planning • Smaller firms are struggling

with investments in methodologies and tools

• Clients are increasingly going cross-border

• “Commoditization” of certain services (need to increase breadth of offering)

• War for talent

Current trends and market dynamics are paving the way for consolidation within industries.

• Size lifts profitability • Gain scale & enables

efficiencies • Strengthen market position

and brand • Get access to attractive

market segments or strengthens service lines

• Access to an international network

• Attract key talent

1. Strategic considerations 2. Managing the M&A process 3. How BDO Indonesia can

help

DRIVERS MOTIVES OUTLINE

3

1.Strategic Considerations

4

THE ”MAKE-BUY” DILEMMA OFTEN NOT EITHER OR

• Strengthens position • Speed • Falling prices amongst

firms • Increased regulation and

fee pressure • Enables organic growth

• Deal complexity • Candidate unavailability • Integration complexity • Resistance from Target

MERGER/ACQUISITION

PRO

CON

• Easier cultural fit • Simplicity

• Slow pace • Difficult in low-growth

markets • Difficult if sub-scale size

ORGANIC GROWTH

5

2.Managing the M&A due diligence process – a seamless approach

6

MANAGING THE M&A PROCESS OUR GUIDING PRINCIPLES

Promote “one-firm” approach – between

legal, financial and tax due diligence teams

Collaboration between teams to prepare an integrated report for

stakeholders

Consider the interest of all stakeholders and

engage in frequent communication/

updates with both the Target and the stakeholders

Instill rigor and discipline in the

process

1 2 3 4

Our four guiding principles allow us to ensure our clients experience a seamless due diligence process

7

3.How BDO can help?

8

PROCESS

Preliminary diligence/ evaluation

Tax due diligence

review and reporting

Closing

Preliminary diligence/detailed discussions: • Once a certain level of interest has been reached between an acquiring entity and a target, a

Non-Disclosure Agreement (NDA) should be executed to allow for a more detailed discussion and comprehensive sharing of information.

• At this point, it would be appropriate to share with the target a preliminary information request list which would include a list of things BDO Indonesia would need in order to complete a preliminary review of a possible target as well as prepare a possible deal structure scenario.

• Preliminary diligence will include, among other things, an initial assessment of risk and identification of financial opportunities (if any) and planning.

• Depending on size and assessed need, meet with the target to revisit the key tasks to be performed in the short-term.

• Part of this process will be ensuring that all required information has been received.

9

PROCESS

Preliminary diligence/ evaluation

Tax due diligence

review and reporting

Closing

Tax due diligence review and reporting: • Review and assess Target’s financial statements including notes to the accounts, with a view

of identifying any material tax issues that may affect the Target during the Covered Periods. The common key tax areas are: corporate income tax, withholding tax, final withholding tax Article 4(2), value added tax and employee income tax. Our review will also include comment on the rationale of the substance of the transaction and/or business structure.

• Our review include performing reconciliation at a high-level to determine the level of tax compliance of the Target between what is recorded in the books and tax objects that have been reported. Depending on the development of the finding, the review may be extended to a more detail level to cover area(s) that based on the initial review might have substantial tax issues and exposures. Any discrepancy will open a discussion with the Target’s management team before it is considered a liability for the acquiring entity.

• Weekly update can be arranged and agreed upon if requested. A normal timeframe to issue a first draft report is two weeks since complete data required is received.

10

PROCESS

Preliminary diligence/ evaluation

Tax due diligence

review and reporting

Closing

Closing: • Upon completion of our analysis, we will release a tax due diligence report that outlines the issues

we found during the fieldwork as well as the corresponding tax exposures in regard to the contemplated corporate action (e.g., acquisition). We may also provide you with our comments on the proposed transaction and/or business structure that you contemplate, if requested. You may decide to proceed based on the result of our analysis and recommendation.

• When needed, the process may continue with a tax structuring effort to ensure an optimal business integration is achieved. If this is of interest, BDO Indonesia can help in the following areas: • Providing tax advisory in relation to the group’s structure and/or on-going and/or future

transactions; • Assisting with review of transaction policy and standard operating procedures to ensure the Target

(or group) maintains a high level of tax compliance in upcoming years; and • Providing training to new recruits and/or existing staffs for tax recording and reporting purposes.

For more information please contact: BDO INDONESIA

Michelle Mianova (mmianova@bdo.co.id)

PT BDO Bisnis Solusi Indonesia Prudential Tower 16th-18th Floor Jl. Jenderal Sudirman, Kav. 79 Jakarta 12910, INDONESIA Tel : +62-21 5795 7300 Fax : +62-21 5795 7301 www.bdo.co.id

About BDO

BDO is the one of the largest global network of public accounting, tax and advisory firms which perform professional services. These firms have representation in 154 territories, with 64,300 people working out of over 1,400 offices worldwide.

BDO member firm in Indonesia dated back to 1992 when Drs Richard B Tanubrata was the Managing Partner of KAP Drs RB Tanubrata, a public accountant firm that was founded in 1979.