The IRD recently issued guidance on its assessing practice on tax issues arising from corporate amalgamations (the Guidance). The Guidance covers issues such as: (1) tax treatments of fixed assets and trading stock, (2) utilisation of tax losses and (3) profits tax filing positions of the amalgamating/amalgamated company in the year of amalgamation. In particular, the Guidance indicates that various conditions will need to be met before the tax losses sustained by the amalgamating/amalgamated company before the amalgamation can be utilised to offset against the profits derived by the amalgamated company after the amalgamation. Subsequent to issuing the Guidance, the IRD also published three advance ruling cases on corporate amalgamation.
While the IRD’s clarification of the profits tax treatment of corporate amalgamations is welcome, there are still uncertainties on various issues. Pending the enactment of the specific tax legislation on corporate amalgamations in Hong Kong and further clarifications from the IRD, taxpayers contemplating a corporate amalgamation may consider applying for an advance ruling to obtain certainty, especially when the tax amount at stake is significant. Taxpayers should also consider any potential foreign tax issues/exposure arising from corporate amalgamations.
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