The tax treatment of mergers, divisions and restructuring

Abstract

This study was prompted by the fact that from a local perspective, corporate restructuring is hampered by many obstacles of taxation. This reality impelled the author to engage in an examination of the relevant provisions contained in the Income Tax Acts and in the Duty on Documents and Transfers Act to draw attention to the impediments of taxation arising in the process of changing the structure of a company. Due to the vast nature of this study, it is established at the outset that VAT was excluded from the scope of this thesis; the analysis was limited to tax on income and capital gains and stamp duty. The Budget Measures Act, published on the 16th April 2010, introduced a number of changes to Maltese tax legislation. Despite the fact that to date, not all the provisions contained therein have been implemented, and that the Act contains various effective dates governing different provisions, for the purposes of this thesis, such provisions were construed to have been implemented. The first Chapter introduces the forms of corporate restructuring possible under the Companies Act 1995 namely mergers, acquisitions, divisions, share transfers, business transfers, liquidations, reconstructions and the reduction of share capital (the latter not being a form of restructuring per se, but is nonetheless worth an examination in the context of this thesis). This leads the author to examine the way in which such transactions attract income tax on capital gains as contemplated in the Income Tax Act (Chapter 2). In the third Chapter, the stamp duty provisions are discussed in the context of corporate restructuring. Once the study of the local provisions is concluded, the European dimension to corporate restructuring is analysed through the study of provisions of the Tax Merger D The aim of this work is to highlight tax hurdles involved in the different forms of corporate restructuring possible under our law, in order to create further awareness to the fact that corporate restructuring is heavily burdened by tax implications.