7 overlooked compliance pitfalls in cross-border M&A deals
Mergers and acquisitions (M&A) are high-stakes transactions that promise growth, market access and strategic advantages for companies looking to expand internationally. But beneath the surface of successful deal-making lies a web of compliance risks that can quietly derail even the most promising arrangements.
Whether you’re advising on a carve-out, cross-border acquisition or post-merger integration, understanding these often overlooked pitfalls is essential for protecting your clients and ensuring long-term success.
Here are 7 compliance blind spots that could derail your M&A deal.
1. Rushing operational setup across borders
Speed is often seen as a competitive advantage, but rushing processes to become operational in multiple jurisdictions can backfire. Local compliance requirements vary significantly, and failing to conduct due diligence can result in fines, delays or even the forced closure of your business.
Tip: allow 6–12 months for setup in complex markets and prioritise local expertise.
2. Overlooking local tax registration requirements
Tax registration isn’t a one-size-fits-all process. In some countries, it follows incorporation; in others, it must happen simultaneously. Missteps here can result in penalties or operational suspensions.
Tip: map out tax registration timelines for each jurisdiction before finalising the deal structure.
3. Assuming global software covers local compliance
Many companies rely on global accounting or ERP systems, assuming they’ll handle local reporting. But these tools often lack the flexibility to meet country-specific formats and regulatory updates.
Tip: validate software capabilities against local compliance needs—or risk costly retrofits.
4. Neglecting deal structure implications
It is crucial to get the structure of the M&A deal right, as it influences a myriad of factors that impact operations. These include what setup to establish, the type of entity to incorporate and which tax registrations and regulatory approvals to obtain.
The deal structure also determines costs and the time it takes for the company to become operationally ready. Incorporating a new entity, for example, takes a significant amount of time and is usually reliant on external parties, such as regulators or banks.
A mistake that companies often make during mergers and acquisitions is to focus on tax requirements while paying less regard to the setup and management of the new entity. Similarly, many companies initiate the deal structure without giving sufficient thought to compliance requirements during the transaction.
A key implication for M&A deal structures is tax. While official timelines for registering and filing tax returns are always strict, organisations often don’t realise that deadlines for tax audits and filings start from incorporation and generally cannot be postponed. Our research shows this to be the case in more than 60% of jurisdictions where we operate. These rigid timeframes highlight the importance of local presence during M&A deals and a deep understanding of local tax requirements. Even dormant companies must file nil returns from incorporation. Non-compliance will likely result in fines or harsher penalties.
Tax registrations, local compliance regulations and jurisdiction-specific timelines underscore the importance of crafting a meticulous M&A deal structure before the transaction takes place.
Tip: involve legal and compliance experts early to design a structure that supports both strategic and operational goals.
5. Ignoring dormant entity obligations
Dormant entities are often assumed to be exempt from compliance. In reality, many jurisdictions require nil tax returns and other filings, even if the entity isn’t active.
Tip: treat dormant entities as active from a compliance standpoint until confirmed otherwise.
6. Underestimating post-M&A operational gaps
Insufficient due diligence can cause a newly formed company to collapse. Companies should enter into M&A transactions with a clear vision of how things will work after the merger or acquisition has been completed. This includes how processes will be managed or what technology platforms will be used. If these gaps are only identified once the transaction is completed, the new entity’s operations must be paused while processes are put in place, increasing costs and adding a significant administrative burden.
Case study
TMF Group was called to help with a carve-out from a large pharmaceutical company that was nearing completion. The new entity had already designed its operational processes and was committed to a particular accounting software, aiming to be fully up and running within eight weeks.
The company was spread across Latin America, Europe and Asia. It was local-language expertise that initially brought them to us, as they believed the software would do most of the other heavy lifting for them.
However, when we started working on the different compliance prerequisites of the various jurisdictions, it became clear that the software was not equipped to deal with the local nuances. As a result, the client had to radically revise the aim of going live within two months and prioritise assessing and quantifying the non-compliance risks and potential costs.
Our research shows that 83% of jurisdictions impose significant fines for non-compliance. Around a third of these might force a long-term suspension of business activity or licence suspensions, while a quarter may prevent further business entirely. The resulting reputational damage will also have a long-term adverse effect on profits.
Tip: audit operational processes in detail before closing the deal, especially in cross-border transactions.
7. Relying too heavily on TSAs for compliance
Transition service agreements (TSAs) usually cover financial reporting, but they don’t often include local compliance guidelines. Buyers must find their own solutions for tax filings, statutory accounts and regulatory obligations.
The buyer will enter into a TSA with the seller to ensure operational and corporate reporting support during the transition, as the new entity works to become fully independent.
From a finance and accounting perspective, TSAs typically cover invoicing, US GAAP, IFRS reporting, consolidation, accounts receivable and accounts payable management. What they usually do not cover is compliance with local regulations, preparation of financial statements, preparation of local tax returns and other processes required by local laws.
In their haste to become operationally ready, companies may assume that local processes can be replicated around the world, but this is not the case. Therefore, understanding the local requirements and how long it will take to meet them is critical.
When entering into a merger or acquisition deal, companies should investigate local compliance processes and requirements, as well as assess operational processes.
Tip: build a compliance roadmap independent of the TSA to avoid post-deal surprises.
M&A compliance as a strategic priority
Mergers and acquisitions deals are complex undertakings, and M&A compliance risks are high. While financial and strategic considerations often dominate the conversation, compliance is a core pillar of M&A success.
For a deep dive into how carve-outs fit into the M&A lifecycle, read the next article in our M&A insights series: Strategic carve-outs in the M&A lifecycle
