Price Waterhouse Skattejurister AB
A merger in the Swedish legal context is a reorganization whereby one company or several companies are dissolved and cease to exist as legal entities while at the same time another surviving legal entity, or a new company formed for the purpose of the merger, acquires all the assets and liabilities and assumes responsibility for any commitments made by the dissolved companies.
From a tax standpoint, a merger is deemed to be a transfer of assets and liabilities followed by a liquidation of the company that ceases to exist. In principle, income tax on the distribution of assets could result. However, in the case of a merger of a wholly owned subsidiary into a parent company, no income tax would normally have to be paid because of specific exemptions in the tax legislation.
Under the EU merger directive which has been implemented in domestic tax law, tax reliefs are available for mergers carried out across borders within the EU.
In acquiring assets, the buyer obtains a basis for depreciation of the assets equal to the acquisition price. The price should preferably be allocated among the assets in the purchase agreement so as to avoid disputes with the Tax authorities.
A sale of assets by a company is generally treated as an ordinary business transaction and profits realized by the sale are currently taxed as business income.
No distinction is made from a tax standpoint between movable tangible assets and intangible assets. Both categories are depreciated under the same rules and the sales proceeds are equally taxable. Special rules govern the tax treatment of real estate and equity securities, the disposal of which are, in principle, deemed to be a capital gains transaction.
Interest expense is always fully deductible for a corporate taxpayer.
A share acquisition only concerns the ownership of the shares of a corporate vehicle. The vehicle itself remains unaffected by the change of the ownership. No step-up of depreciation bases is allowed for tax purposes without the step-up amount becoming immediately subject to income tax.
The purchaser is not allowed to amortize the cost of the acquired shares for tax purposes. Goodwill inherent in the cost of shares is consequently not amortizable for tax, but it may have to be amortized for accounting purposes.
A corporate taxpayer is entitled to deduct all interest expense, even if the asset financed is not depreciable or amortizable for tax purposes.
The relative interests of a buyer and a seller in an acquisition situation are summarized here.
1. For the buyer, an assets acquisition establishes a tax depreciation base equal to the total purchase price of depreciable assets which exclude equity securities.
2. For the seller, a sale of assets and a sale of shares are both taxable events but under different rules for the determination of taxable income. A detailed review of the relative impact on the seller's overall tax situation would therefore always be commendable.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information please contact Staffan Andersson Price Waterhouse Skattejurister AB - Stockholm + 46 8 723 98 00, or enter a text search "Price Waterhouse" and "Business Monitor"
