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M&A Tax Glossary

Explanations of M&A terms relates to Tax

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C

Controlling Relationship

A controlling relationship is any relationship where a person or a corporation directly or indirectly holds more than 50 percent of the total number of issued stocks or the total amount of investments in a corporation (excluding treasury shares) (hereinafter referred to as “direct/indirect controlling relationship”), or a relationship between corporations, both of which have a direct/indirect controlling relationship with a person or a corporation in common.

D

DES

DES is an abbreviation for debt equity swap, a transaction in which a creditor transfers its monetary claims to a debtor in exchange for the debtor’s equity.

N

No Consideration Merger

A “no consideration” merger (mutaika gappei) is a merger where no consideration is distributed to shareholders of the disappearing corporation.


NOLs

Net operating losses, so called “NOLs”, are the tax deductible expenses and losses in excess of taxable revenues and gains incurred in a given tax year. Where NOLs are incurred in a given tax year, the NOLs may be carried forward by a company to offset taxable income incurred in certain tax years in the future, provided that the company has blue-form tax return filing status.

S

Spin-off

A spin-off is a type of corporate reorganization where consideration (i.e. shares in a newly established company set up for the purpose of carving out a certain business, or shares in its wholly owned company) is distributed on a proportional basis from a company engaged in various businesses to its shareholders by way of an incorporation-type corporate division or distribution-in-kind of all shares in its wholly owned company.

T

Tax Qualified Merger

Tax qualified merger is a merger that falls under any of the following, provided that only shares of the merging corporation (the surviving corporation) are issued to the shareholders of the merged corporation (the disappearing corporation). (i) A merger within wholly owned/owning relationship, (ii) A merger within more than 50% but less than 100% relationship and (iii) A merger for the purpose of joint business.


Tax Qualified Share Exchange

Tax qualified share exchange is a statutory share exchange that falls under any of the following, provided that only shares of the acquiring corporation are issued to the shareholders of the target corporation. (i) A share exchange within a 100% related group, (ii) A share exchange within a more than 50% but less than 100% related group and (iii) A share exchange for the purpose of joint business.


Tax Qualified Investment in kind

Tax qualified investment in kind is an investment in kind that falls under any of the following, provided that only shares of the receiving corporation are issued to the transferring corporation. (i) An investment in kind within a 100% related group, (ii) An investment in kind within a more than 50% but less than 100% related group and (iii) An investment in kind for the purpose of joint business.


Triangular Merger

A triangular merger refers to a merger where the surviving corporation uses shares of its parent corporation, instead of its own shares, as the consideration for the merger.

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