A major Japanese app development company planned to acquire a smaller competitor operating in a complementary market.
The client aimed to integrate operations and maximize post-merger synergies while preserving the target’s accumulated net operating losses (NOLs).
Strategic tax planning was critical to structuring the deal and ensuring a compliant, tax-efficient merger.
The Challenge
The client intended to acquire a growing mid-sized app developer and integrate its R&D, user base, and engineering resources.
The target entity had significant tax loss carryforwards, and preserving these NOLs post-merger was key to the investment thesis.
Japanese tax law imposes strict requirements for NOL continuity in mergers, including continuity of business, shareholding, and other operational factors.
The client was unfamiliar with the qualifying criteria under the Corporate Reorganization Taxation System and needed detailed scenario analysis.
Post-merger capital structure also required review to ensure tax-qualified status and avoid unforeseen tax liabilities.
Accounting integration posed additional challenges, including aligning capitalization rules, software asset valuation, and development cost amortization.
The transaction involved both stock and asset components, requiring careful attention to fair market valuation and intercompany licensing implications.
Epic was asked to work closely with the client’s legal counsel, M&A advisors, and internal finance team to align tax strategy with business objectives.
The timeline for the merger was short, and multiple regulatory filings needed to be completed ahead of the effective date.
Stakeholder communication, especially around tax qualification risks and merger accounting impact, had to be handled clearly and promptly.
What did Epic do
Epic conducted a tax due diligence on the target entity to validate the NOL balances and their origin.
We prepared a qualification checklist under the Reorganization Taxation System and advised on how to structure the merger to preserve NOLs.
Scenario modeling was developed to compare qualified vs. non-qualified merger routes and their tax impacts.
Epic coordinated with legal counsel to review merger contracts, corporate resolutions, and filings with the Legal Affairs Bureau.
We advised on pre-merger shareholder changes and other restructuring steps necessary to satisfy continuity tests.
Post-merger, Epic assisted in integrating accounting policies around R&D capitalization and impairment testing for intangible assets.
We also supported the preparation of tax return disclosures and documentation for potential NTA inquiries regarding the merger.
Our bilingual team helped internal and external stakeholders understand the rationale and risks, enabling smooth execution.
The Results
- NOLs preserved through a tax-qualified merger structure
- Reduced effective tax burden post-acquisition
- Corporate structure aligned with business and legal requirements
- Successful completion of merger within the regulatory timeline
- Cross-functional coordination enabled between tax, legal, and finance teams
