The question of determining the tax year against the background of the Corporate Income Tax Act in the case of a merger of capital companies should be analysed on the basis of the provisions of commercial law on the effect of the merger, as well as the balance sheet law governing the rules for the closure of accounts.
The merger of commercial companies shall take place on the date on which the merger is entered in the relevant register according to the registered office of the acquiring company or the newly bound company, respectively, in accordance with Article 493(2) ksh.
The entry of the merger in the commercial register shall result in the removal of the company being acquired or of the companies merging by the formation of a new company.
However, removal from the register of the acquired company may not take place before the date of registration of the increase in the share capital of the acquiring company, if such increase is to take place, and before the date of entry in the relevant register according to the registered office of the acquired company.
If a new company is established, the merging companies must not be deleted before the date of entry in the register of the new company. The deletion from the register of the companies to be taken over shall take place ex officio.
However, it should be noted that the date of the merger depends on the date on which the registration court issued the order to register the merger. Consequently, the merging companies have no influence on the precise date of the merger (the merger documents cannot indicate the date from which the merger will take place). In practical terms, the date of the merger may fall in the middle of the month, which will significantly impede tax and balance sheet settlements.
However, it should be noted that the date of the merger depends on the date on which the registration court issued the order to register the merger. Consequently, the merging companies have no influence on the precise date of the merger (the merger documents cannot indicate the date from which the merger will take place). In practical terms, the date of the merger may fall in the middle of the month, which will significantly impede tax and balance sheet settlements.
The merger may be carried out without increasing the share capital if the acquiring company has shares or shares in the acquired company and if the shares or shares have been acquired or covered by the procedure Article 515 ksh. In order to enable shares or shares to be held by the shareholders of the company being acquired, if it is not the sole owner of that company, the acquiring company may acquire its own shares or shares of a total nominal value not exceeding 10% share capital.
The Accounting Act defines – according to Article 12(2)(4) uor that the accounts are closed, among others, on the date of the merger connected with the acquisition of the unit by another entity - in the acquired unit.
According to Article 8(1) the Corporate Income Tax Act, in the event of acquisition of the company, its tax year shall end on the date on which the merger decision is issued by the court (the day for which the accounts are closed).
All events occurring on the date of merger and concerning the company being acquired are already recorded in the books of the acquiring company. Under this date, the books of the acquirer shall be entered. The accounts of the acquiring company shall not be closed or opened in connection with the merger.
Tax return of the company taken over for the tax year based on general principles Article 27(1) the Corporate Income Tax Act, submit the management board of the acquiring company.
In companies setting up a new company, the accounts are closed on the day preceding the day of the merger. Subject to Article 8(1) the Corporate Income Tax Act, the tax year in the merging companies by setting up a new company ends for those companies on the day before the day of merger - the day of closure of the accounts.
For the (abbreviated) tax year of each company, the management of the new company shall draw up a tax return on general terms. The book of the new company shall be opened at the date of their merger, according to Article 12(1)(4) uor.
The assets and liabilities of the merging companies by the incorporation of the new company shall be recorded in the accounts of the newly bound company at the date of merger.
In summary, according to regulations Article 8(6) the Corporate Income Tax Act, if the separate provisions require the closure of the accounts (balance sheet) before the expiry of the tax year adopted by the taxpayer, the period from the first day of the month following the end of the preceding tax year until the closing date of the accounts. In this case, the period from the opening of the accounts to the end of the tax year adopted by the taxpayer shall be considered to be the following tax year.
The abovementioned separate provisions are set out in the Accounting Act.
According to 12 section 2 point 4 uor, the accounts shall be closed to the acquirer at the date of the merger involving the acquisition of the entity by another entity, in particular at the date of entry in the register of that merger, but not later than within the time limit 3 months after the event.
This means that as a result of the merger of companies, the tax year of the company being acquired ends on the day of the closure of the accounts, which is the day of the acquisition of the entity by another entity (i.e.
in the case of acquisition, the accounts shall be closed at the date of acquisition no later than within 3 months after the day of the event). Financial statements shall be drawn up at the date of the closure of the accounts of the company being acquired.
Consequently, it will be necessary to give a statement of the amount of income (loss) achieved in the tax year within the relevant time limits specified in the relevant provision.
However, reference should be made to the possibility of non-closure of accounts in the case of a combination of units – capital companies, where the settlement of the transfer takes place by means of a combination of shares and does not result in the formation of a new unit – according to Article 12(3) uor.
At the same time, according to Article 27(1) the Corporate Income Tax Act, taxpayers are obliged to give evidence to the tax offices, according to the established formula, of the amount of income (loss) achieved in the tax year, to the end third the month of the following year and within that time limit, pay the due tax or the difference between the tax due on the income shown in the statement and the sum of advances for the period from the beginning of the year.
Consequently, to the end third the month following the date of the closure of the accounts should be the annual settlement of the corporation tax of each of the merging companies.
Increases in the share capital of the acquiring company shall not be made in the case of acquisition by the acquiring company of its single-member company.