On 3 March 2014, the Companies Ordinance (Cap. 622) introduced provisions to facilitate an amalgamation of two or more wholly owned companies within a group without requiring the approval of the Court (i.e., a qualifying amalgamation).
Pending the enactment of tax legislation to specifically address such court-free amalgamations, the Inland Revenue Department has, in the interim, adopted the assessing practice as stated on its website.
Except for the tax treatment of trading stock, this assessing practice results in no tax charges by essentially adopting a succession approach whereby a qualifying amalgamation is treated as if there were no transfer of the businesses involved and hence no cessation and recommencement of the businesses concerned.
On 19 March 2021, the Inland Revenue (Amendment) (Miscellaneous Provisions) Bill 2021 (the Bill) was gazetted to largely codify the said interim assessing practice into the Inland Revenue Ordinance, while also making some changes thereto.
In addition, subject to two specific exceptions, one of which applies to a qualifying amalgamation, the Bill introduces new provisions which deem the transfer or succession of specified assets without sale as being a sale and acquisition of the assets for tax purposes at the open market value of the assets, capped at a certain amount, at the date of the transfer or succession.
This alert explains and discusses the tax implications of the major provisions of the Bill. Clients who wish to understand in more detail how the Bill might affect their operations, or to express their views on the Bill, can contact their tax executive so that we can address their issues or relay their views to the Government in an appropriate manner.