Thursday, September 3, 2020
Heather M. Field (UC-Hastings), Tax MACs: A Study of M&A Termination Rights Triggered by Material Adverse Changes in Tax Law, 73 Tax Law. 823 (2020):
A “Tax MAC” provision—one that triggers termination or other rights upon a material adverse change in tax law—can be crucial to a business deal if a change in tax law would change a party’s interest in consummating the deal, particularly at the specified price and on the articulated terms. Tax MAC provisions may be particularly important when taxpayers make business decisions in a political climate like today’s, when tax laws could change again, perhaps dramatically, if control of Congress and the White House changes. Yet little has been written about Tax MAC provisions. In response, I studied Tax MAC provisions included in publicly filed M&A agreements from the past five years, focusing on provisions that could trigger termination of the deal if tax laws change adversely. This Article details the findings of that study.
Specifically, this Article identifies the key elements of these Tax MAC provisions (e.g., which changes constitute a “change in tax law” for purposes of these provisions, what procedures are used to determine whether the specified material adverse tax law change has occurred, what consequences arise if such a change has occurred, and how the provisions overlap with any provision requiring a general tax opinion in the transaction), and explains the range of approaches taken on each element. This Article’s analysis of the deal points of Tax MAC provisions can inform the drafting and negotiation of a wide variety of (even non-M&A-related) contractual provisions that would alter the price, terms, or obligation to continue a transaction if tax laws change. Thus, this Article should be instructive for lawyers seeking to help clients proceed with desirable transactions that might otherwise be stymied by uncertainty about possible future tax reforms. More generally, this Article provides insights both into how contractual provisions are, and can be, used to manage deal risk posed by the possibility of future tax law reforms and into deal-making practices when tax laws may change.