Consolidating and Restructuring Global Operations

In the wake of any large acquisition, the acquiring company typically finds that it has overlapping foreign operations, conflicting transfer pricing methodologies, and inconsistent repatriation practices. Postacquisition operating costs can generally be reduced and efficiency increased by consolidating the overlapping foreign operations. The benefits of harmonizing the transfer pricing methodologies and repatriation policies can also be significant. In addition, each group may have various beneficial U.S. and foreign tax attributes such as U.S. or foreign net operating losses, research and experimentation credits, foreign tax credits, and earnings and profits deficits. Preserving and maximizing these attributes is often an important benefit of the consolidation process. This harmonization process often will generate one-time opportunities for savvy taxpayers, which may include for instance distributing supercharged dividends and leveraging foreign operations. More importantly, the process presents a taxpayer with a unique opportunity to review the best aspects of each company's structure and reorganize its business in a tax-efficient manner that captures the best elements of each company's approach. This article addresses the planning and implementation issues, opportunities, and traps for the unwary that may arise when a U.S.-based multinational group that has acquired another U.S.-based multinational group endeavors to restructure and consolidate the overlapping foreign operations. The article sets forth four models for completing the local in-country integrations.