TAXATION OF MERGERS, TAKEOVERS, ACQUISITIONS AND RESTRUCTURING 

Suggested questions and answers

Question 1 

(a) Explain what you understand by the terms: Mergers, Acquisitions and Mergers

Solution: 

1 (a) Mergers and Acquisitions A merger is an arrangement in which the assets, liabilities and businesses of two or more Companies are vested in and carried on by one company, which may or may not be one of the merging companies and under a situation in which the owner of the merging companies owns the new company. 

Acquisition is the act of acquiring effective control over assets or management of a company by another company by acquiring substantial shares or voting rights of the target company.

 (b) Explain the tax implications of a merger between two companies where one of the companies inherits all the assets and operations of the merging companies.

Solution to 1b: 

The surviving company must file returns not more than six months after the end of its accounting year in accordance with Section 55(3)(a) 

(ii) Commencement rule will not be applicable

 (iii) No initial allowance on assets transferred 

(iv) Claim of annual allowance on tax written down values of the assets transferred 

(v) The company cannot inherit the unabsorbed losses and Unutilized Capital Allowances of the merger unless there is evidence that the company is reconstituted 

(vi) All fees paid will be liable to VAT and WHT 

(vii) Stamp duties will be paid on increase in share capital

Question 2: Describe the tax implications of selling or transferring a company to another company in which both companies belong to the same holding company?

Solution: 

Where a company is sold or transferred to another company either for the purpose of better organization or transfer of management and provided that the Revenue is of the opinion that both companies belong to the same group: 

(a) There will be no application of either the commencement or cessation rules; 

(b) All the qualifying capital expenditure transferred are deemed to have been made at their tax written down values; 

(c) In the computation of capital allowance, no initial allowance may be computed while the annual allowance would be based on the unexpired tax life of the qualifying capital expenditure; 

(d) Any unutilized capital allowances transferred are deemed to have been transferred prior to sale; and (e) Any unrelieved losses transferred are also deemed to have been relieved prior to the transfer or sale.