Amalgamations and mergers : tax and legal comparisons and nuances

• Jurisdiction: South Africa
• Author: Michael Rudnicki,Heather Ashe
• DOI: 10.10520/EJC-a0689ce65
• Published date: 12 October 2017
• Date: 12 October 2017
• Record Number: btclq_v8_n3_a2
• Pages: 1-10
• Published By: Siber Ink

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© SIBER INK

Amalgamations and Mergers:

TAX AND LEGAL COMPARISONS AND NUANCES

MICHAEL RUDNICKI* • HEATHER ASHE†

ABSTRACT

It is often asked whether the amalgamation and merger provisions of the

Companies Act, 2008 (‘the Companies Act’), must apply in order to satisfy

the amalgamation and merger requirements of section 44 of the Income Tax

Act, 1962 (‘the Act’). This article examines the provisions of section 44 of the

Act and the applicable provisions of the Companies Act relevant to mergers

and acquisitions and highlights salient comparisons and nuances.

It is apparent that the income tax provisions are less onerous than the

comparative company law provisions. The Companies Act contemplates the

amalgamating or merging entities almost automatically stepping into the

shoes of the amalgamated or merged company or companies. The amalga-

mation takes place in terms of a prescribed merger agreement. By contrast,

the Act is not prescriptive in terms of the legal mechanism required to transfer

assets from an Amalgamated Company to a Resultant Company, and conven-

tional sale-of-business or transfer-of-business agreements may accordingly be

applied for tax purposes.

It is questionable whether the automatic merging of entities from a

company-law perspective contemplates a ‘disposal’ for tax purposes. The

Companies Act does not contemplate a disposal or a sale, and accordingly it

should be considered whether section 44 of the Act should be amended to

reference the applicable provisions of the Companies Act.

The Companies Act requires all assets and liabilities to be merged, whereas

the Act permits assets to settle particular liabilities and costs to be retained by

the Amalgamated Company.

Interestingly, the Companies Act does not consider the nature of the

consideration given for the acquisition of the assets being transferred, and

accordingly the issue of shares as consideration is not considered, unlike the

equivalent provisions of the Act.

The Companies and Intellectual Property Commission requires the non-

surviving amalgamating or merging companies to be deregistered. The Act

provides a choice of deregistration, winding-up or liquidation.

Introduction

This article summarises the amalgamation and merger provisions contained

in section 44 of the Income Tax Act 58 of 1962 (‘the Act’). It then analyses

the application of the Companies Act 71 of 2008 (‘the Companies Act’)

in relation to amalgamations and mergers, and then considers compari-

sons and nuances between the tax and company law legislation relating to

amalgamations and mergers.

* Director, Corporate Tax Practice, and Head: Private Equity Markets, KPMG.

† Associate Director, Corporate Law Advisory Practice, KPMG.