Tax benefits through M & A

Tax Aspects of  M & A:

An amalgamation involves the merger of one or more companies into an existing companies or to merger of two or more companies into a new company formed for the purpose.The merging companies are called amalgamating companies and the merger companies are called the amalgamated company. The companies are entitled to various Tax benefits, if the following conditions are fulfilled:

(a.)All the properties and liabilities of the amalgamating company immediately before amalgamation become the property and liabilities of the amalgamated company by virtue of amalgamation.
(b.)Shareholders holding not less than 90 percent in value of the shares in amalgamating company become shareholders of the amalgamated company by virtue of amalgamation.

Tax concessions are granted to the amalgamated companies only if the amalgamating company is an Indian company.Following deductions to the extent available to the amalgamating company and remaining absorbed or unfulfilled will be available to the amalgamated company.
  • Capital expenditure on scientific research
  • Expenditure on acquisition of patent right or copy right, know how 
  • Expenditure for obtaining license to operate telecommunications services
  • Amortization of preliminary expenses
  • Carry forward of losses and unabsorbed  depreciation
Of the above benefits,the most important is the one relating to carry forward of the losses and unabsorbed depreciation of the amalgamating company.Generally accumulated depreciation and unabsorbed depreciation cannot be carried forward and set off by another asses see. However as an exception, Carry forward and set off is available in case of amalgamation, Subject to the following conditions.
  • The amalgamated companies continues to hold at least three fourth of the book value of the fixed assets of the amalgamating company for the period of five years from the effective date of amalgamation.
  • The amalgamated company carries on the business of amalgamating company for a period of five years.
  • The amalgamated company achieves a level of production of atleast 50 percent of the installed capacity of the said undertaking before the end of four years from the date of amalgamation and continues to maintain the said minimum level of production till the end of five years from the date of amalgamation.

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