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[Glossary] Tax Qualified Merger

M&A Tax

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.

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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
(iii) A merger for the purpose of joint business

Requirements for each type of tax qualified merger are as follows;

Requirements for tax qualified merger (i)
Wholly owned relationship
(ii)
More than 50% but less than 100%
(iii)
Joint business
Continuity of controlling relationship Where the surviving and disappearing corporations are under common control of the same shareholder, such shareholder should continue to hold the shares in the surviving corporation.
Assumption of employees 80% or more of the employees of the disappearing corporation should continue to work in the surviving corporation.
Assumption of business The main business of the disappearing corporation should be carried on by the surviving corporation after the merger.
Business relatedness The main business of the disappearing corporation must be related to any one of the business of the surviving corporation.
Scale/ Specified officer requirement Scale (sales, number of employees, etc.) must be within a 1 to 5 ratio. Alternatively, specified officer (managing director) of the surviving and the disappearing corporations must participate in post-merger management.
Continuous holding of shares Shareholders of the disappearing corporation should continue to hold the shares in the surviving corporation received as consideration of the merger (only applicable where the number of shareholders of the disappearing corporation is less than fifty).

 

In a tax qualified merger, assets and liabilities are transferred at their book value and therefore the disappearing corporation does not recognize any taxable gain or loss upon merger. In principle, net operating loss of the disappearing corporation would be carried over to the surviving corporation.

(As of December 2014)

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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