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Proposed amendments to clarify income tax treatment of statutory mergers

Tuesday, 04 June 2019   (0 Comments)
Posted by: Authors: Robert Gad, Megan McCormack and others
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Authors: Robert Gad, Megan McCormack and Jo-Paula Roman (ENSafrica)

Sections 113 and 115 of the Companies Act, 2008 provide for an automatic statutory merger of two companies. The transfer occurs by way of operation of law, and barring any express prohibition to the contrary in a contractual arrangement, no third party consent is generally required to implement the merger. This type of transaction may typically give effect to a desired corporate reorganisation, in terms of which an existing company is liquidated, wound up and/or deregistered. 

The corporate reorganisation provisions contained in sections 42 to 47 of the Income Tax Act, 1962 largely afford relief in circumstances where companies engage in internal restructure transactions. Certain of the reorganisation rules require a company to be liquidated, wound up and/or deregistered. For example, In the context of liquidation distributions in terms of section 47 of the Income Tax Act, section 47(6) of the Income Tax Act provides that the rollover relief under section 47 will not apply where, inter alia

“the liquidating company has not, within a period of 36 months after the date of the liquidation distribution, or such further period as the Commissioner may allow, taken the steps contemplated in section 41 (4) to liquidate, wind up or deregister; or has at any stage withdrawn any step taken to liquidate, wind up or deregister that company, […] or does anything to invalidate any step so taken, with the result that the company will not be liquidated, wound up or deregistered”

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