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Are you planning to merge or split up a company? Watch out for changes in the law!

From 1 January 2018 the conduct of merger and division transactions requires economic justification.

From 1 January 2018 the conduct of merger and division transactions requires economic justification.

If it is not there, the owners of the company will pay a tax on the market value of the assets taken over.

At the beginning of this year, the situation related to the taxation of merger and company division transactions has changed...

From 1 January 2018 the conduct of merger and division transactions requires economic justification. If it is not there, the owners of the company will pay a tax on the market value of the assets taken over.

At the beginning of this year, the tax-related situation of merger and division transactions changed.

If the tax office considers that its main objective was to obtain a tax advantage and that it was not carried out for economically justified reasons, the company carrying out the conversion may be forced to pay income tax on the entire market value of the property being acquired.

It should all be responsible for amending the PIT Act and the CIT Act. The change has changed, among others. Article 24(19) Law on income tax on individuals.

Currently, in the light of this, ‘the tax exemption for the supply of an undertaking or its organised part shall not apply if the purpose of the transfer of the undertaking or its organised part is to avoid or evade taxation’.

In addition, revised Article 24(20) introduced the presumption that the principal, or one of the main objective ó in the aport of an undertaking or its organised part is to avoid or evade taxation if that activity is not carried out for legitimate economic reasons.

The same terms were introduced in the amendment Article 12(12) and (13) Law on income tax on legal persons. In the light of these changes, the tax office may require the tax to be paid three times: from the company when taking over another company, at its subsequent sale, as well as from the company.

In addition, according to Article 10(4) and (4a) CIT laws, mergers or divisions of companies and exchanges of shares may benefit from the benefit of tax neutrality only if they are carried out for legitimate economic reasons. Unfortunately, the term "reasoned economic reasons" is so vague that it leaves much room for interpretation to the tax authorities.

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