Brazil’s tax reform is reshaping key assumptions underlying M&A transactions in Brazil. The new IBS and CBS model affects valuation, cash flows, financial modelling, tax planning, and the contractual structuring of transactions. During the transition period, expanding the scope of due diligence is essential to map risks related to tax credits, sunsetting tax incentives, legacy contingencies, the tax classification of goods and services, compliance, and systems readiness.
The reform also affects purchase price increases, indemnities, representations and warranties, financial covenants, financing arrangements, and accounting effects, including impairment and deferred tax assets. The shift to destination-based taxation may also require companies to revisit corporate structures and operating flows, creating both challenges and opportunities for M&A transactions.
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