Japanese Tax Blog in English

日本の税務情報を英語で書くブログ by みなと国際会計事務所

Qualified Merger as joint venture. The conditions to be met.

time 2017/12/25

There are two types of merger and acquisition under Japanese corporate tax law. Namely qualified and unqualified merger.

Well, the difference is that, in case it is qualified, unrealized gain on asset will not be taxed in the merger. More importantly you will carry the tax loss accumulated in the past.

On the other hand, in a unqualified merger, all the assets in the merged company are to be regarded as sold or acquired by the other company (buyer), and therefore they are to be taxed. No tax losses are allowed to be carried in the buyer company.

To be “qualified” merger for the tax, there are two types, (1) merger in a same company group and (2) joint venture. To meet the condition to qualified for “joint venture” type merger, the condition #1 and either of the condition a) or b) of #2 and the #3 have to be met:

1)  The two companies must have businesses that relate each other in nature.

2-a) The  proportion of the size of the both companies has to be with in the ratio of 5:1.

2-b) C level directors of the acquired company have to participate in the management of the acquiring company as a senior director.

3) More than 80% of shareholders of acquired company has to keep owning the newly issued shares of the acquiring company.

If you are buying a company for the carried losses that it has or at least the loss is one of the major reasons, you need to confirm that the conditions for the joint venture type merger are met. Otherwise, it will be  waste of money.


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