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An evaluation of control premium and its tax implications

Published on 01 Oct 12 by "THE TAX SPECIALIST" JOURNAL ARTICLE

A correct understanding and assessment of control premium has direct implications for the outcome of a principal asset test required to determine whether or not a foreign resident is liable to Australian capital gains tax arising from a capital gain on a sale of shares in a company and the assessment of enterprise value and goodwill value for tax purposes under the top-down residual method. Unfortunately, such understanding has proved elusive in practice.

This article discusses the important distinction between ex-ante control premium and ex-post observed takeover premium and the incorrect practice of mechanistically assessing the ex-ante control premium for an entity which has not been subjected to a takeover bid as at the valuation date based on average observed ex-post takeover premium. In fact, achieving the correct understanding and assessment of control premium for a given entity requires significantly complex and lateral valuation thinking.

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Hung CHU
Current at 25 May 2011 Click here to expand/collapse more articles by Hung CHU.
 

 

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