When a company merges with, acquires, or is acquired by another firm, legacy tax issues can add an extra level of complexity. In Ireland, the tax agency has issued new guidance to support companies with the transition and to ease the administrative burden on the successor company.
In its new guidance, in new Tax and Duty Manual (TDM) Part 38-00-01, the Revenue explains that, in general, the successor company becomes responsible for the tax filing, reporting, and payment obligations of the company that it has merged with or acquired.
In essence, the successor company "effectively 'steps into the shoes' of the transferor company with regard to the tax filing and reporting obligations of the transferor company,” says the guidance.
Where a company being acquired will continue business as usual after the acquisition, there are fewer tax considerations to deal with. However, when the transfer of all the transferor company’s assets and liabilities to a successor company results in the cessation of the trade of the transferor company, the company’s dissolution will trigger the end of a tax accounting period for the transferor company.
Certain tax filing and payment obligations flow from this event, as well as from the disposal of any chargeable assets.
Dissolving a Company
Where a company is to be dissolved, you should seek to ensure that the transferor company, prior to its dissolution, files all information reporting returns, covering transactions between the last relevant return date and the dissolution date.
Filing after dissolution can be problematic, explains the guidance, as “the transferor company will dissolve without a winding-up period and without a liquidator being appointed.” It adds that “at the time that tax returns are due to be filed, the transferor company will have ceased to exist and, therefore, there will be no company officers to sign and submit tax returns and make tax payments on its behalf.”
The guidelines highlight that the onus is on the transferor and successor companies to ensure that, in the course of preparing for and implementing the merger or division, as the case may be, all tax obligations pertaining to the transferor company and the merger/division are identified and discharged.
Any outstanding obligations transfer to the successor company or companies, along with any liability to tax. Where returns are outstanding, the returns should be filed by the successor company using the tax reference number of the transferor company, within the normal deadlines for such.
Tax liabilities that have transferred to the successor company from the transferor company should be paid by the successor company under the relevant tax reference number of the transferor company.
Once all of the transferred liabilities have been settled and all outstanding returns have been filed, the successor company can apply for the tax reference numbers of the transferor company to be deleted.
Any historical tax liabilities of the transferor company will also become liabilities of the successor company. For example, this includes any additional liabilities that are identified as part of a compliance check that relate to the period prior to dissolution.
Further, those seeking to acquire or merge with another company should note that the successor company or companies may not rely, after the transfer, on tax or tax-related documentation provided to the transferor company, including declarations, treaty clearances, certificates, Revenue approvals, opinions, and confirmations.
Applying to Revenue
Where a successor company wishes to rely on any tax or tax-related documentation provided to a transferor company, it should make an application to Revenue. Appeals are however transferred from the transferor company to the successor company.
The successor company should seek to ensure that it will have access to Revenue Online Services in respect of the transferor company. For example, it is advisable for the transferor company to obtain a new ROS digital certificate prior to its dissolution, and ensure that log-in details are passed to the successor company, to facilitate compliance with any outstanding tax matters.
The Revenue's guidance concludes by providing basic advice to companies on: stamp duty, capital gains tax, capital acquisitions tax, corporate tax, rules on dividend distributions, rules concerning capital allowances and losses, repayments of preliminary tax, payroll taxes, PAYE for transferred employees, and relevant contracts tax issues.
The guidance provides an outline of some of the more common tax issues that arise as a result of M&A activity. Mergers and acquisitions can be complex from a tax perspective; professional advice should be sought.
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Disclaimer: Please note that this commentary is general in nature and is not intended to represent formal advice.