company mergers and tax (part 1)

by Robert Gad and Janel Strauss In a series of articles we will consider the relationship between the merger and acquisition rules in the new Companies Act 71 of 2008 (“Companies Act”) read with the relevant provisions of the Income Tax Act 58 of 1962 (“ITA”) and of the new Tax Administration Bill. In this first article we focus on the application of the various tax “rollover” rules to merger and acquisition transactions, in particular with regards to the newly introduced statutory merger. We also consider the general ambit of the new statutory merger and its impact on the administrative tax obligations that the parties involved have in terms of the ITA.

A new era for mergers and amalgamations

The coming into effect of the new Companies Act 71 of 2008 (“the New Companies Act”), which is likely to be in September of this year, will unveil a new chapter in South African corporate law. Valid criticism may be leveled against many aspects of the new Companies Act, but the introduction of amalgamations and mergers into our corporate practice, is largely a welcomed innovation. Section 113 of the New Companies Act allows profit companies (state-owned, public, private and personal liability companies) to amalgamate and merge. An amalgamation or merger will entail two or more profit companies combining or sharing their commercial efforts and economic resources, in whole or in part. It will result in either the restructuring of one or more of the existing merging companies (whether relating to their shareholdings and or their asset composition), the creation of a new company or a combination of the two. Although Read More …