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Hong Kong Revises Guidance on Court-Free Company Amalgamations

On 16 December 2016, the Hong Kong Inland Revenue Department published revised guidance on the profits tax consequences of a court-free amalgamation. The guidance covers:

  • Amalgamation with sale of assets of the amalgamating company;
  • Amalgamation without sale of assets of the amalgamating company, which covers the tax treatment of both the amalgamating and amalgamated companies;
  • The utilization of tax losses brought forward, which depends on certain conditions, including:
    • The financial resources test;
    • The trade continuation test;
    • The post entry test; and
    • The same trade;
  • Profits tax return requirements in respect of the amalgamating companies; and
  • The rights and obligations undertaken by the amalgamated company.

The guidance also notes that if the Commissioner is satisfied that the court-free amalgamation is not carried out for the purpose of obtaining tax benefits, the anti-abuse provisions in Sections 61A or 61B of Chapter 112 of the Inland Revenue Ordinance will not be made applicable to the amalgamation, and the amalgamated company will generally be treated as far as possible as if it is the continuation of and the same person as the amalgamating company. Section 61A concerns the Commissioner's authority to counteract transactions where the sole or dominant purpose was to obtain a tax benefit, and Section 61B concerns the Commissioner's authority to disallow the setoff of losses where the sole or dominant purpose of a change in shareholding was to utilize a loss.

Click the following link for the full guidance.

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