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[Glossary] No Consideration Merger

M&A Tax

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

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No Consideration Merger

A “no consideration” merger (mutaika gappei) is a merger where no consideration is distributed to shareholders of the disappearing corporation.
In practice, “no consideration” mergers are seen in certain 100% group cases where merger consideration can be omitted, e.g., a merger between a parent company and its wholly-owned subsidiary, a merger between fellow subsidiary companies that are wholly owned by the common parent company, etc.

The 2010 Tax Reform clarified the tax treatment of no consideration mergers. In the 100% group cases set out below, a “no consideration” merger is treated as a tax qualified merger:

100% parent-sub relationship

(1) The surviving corporation wholly owns the disappearing corporation prior to the merger.

100% relationship under a common shareholder

Either of the following three cases:
(1) A person (either natural or corporate) wholly owns both the surviving corporation and the disappearing corporation prior to the merger.
(2) The surviving corporation and its wholly owning shareholder wholly own the disappearing corporation prior to the merger.
(3) The disappearing corporation and its wholly owning shareholder wholly own the surviving corporation prior to the merger.

In addition to the above, it is expected that the common shareholder will directly or indirectly wholly own the surviving corporation.

 

(As of April 2015)

This article is general in nature and is not intended to provide any tax advice on specific transactions. This article may not be relied upon by anyone and we accept no liability to anyone who took actions based on this article.

M&A Tax Glossary

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