みなと国際会計事務所 Accounting Intelligence blog by a CPA in Tokyo

みなと国際会計事務所 Accounting Intelligence blog by a CPA in Tokyo, tax tips, accounting, running business

Carried Loss – Qualified merger and acquisition

time 2017/02/13

You may think it would be a good idea to buy a company with tax losses accumulated from the past. You buy one and offset against taxable income in your own company.

It will not work.

Carried loss and unrealized loss in assets can only be utilized when its merger is regarded as qualified one. Carried loss obtained through unqualified merger and acquisition will not be allowed to offset against your income.

The tax law defines two types of M and A as qualified:

A) M and A within a same group,
B) Joint venture.

M and A within a same group

1) For the category A, the target company has to be owned more than 50 percent. Both direct and indirect ownership count to determine the percentage. A company in “a same group” includes one that is owned by a same shareholder.

2) They have to have been in a same corporate group for at least 5 years.

Joint venture

1) The both companies (one to acquire and one to be merged) have to be related each other in their business area.

2) Business to be acquired has to continue under the merging company.
3) One to merge and one to be merged have to be within 5 folds in size.
4) At least one senior director from the both companies have to remain and take a senior role in the new company.

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