- 8 Marks
Question
Farmer Ltd is a non-resident company based in the USA. Farmer Ltd has succeeded over the years in acquiring and selling companies in distress alongside its primary objectives of buying and selling cosmetics. In the 2020 year of assessment, it decided to announce its presence in Ghana by acquiring Bugum Ltd, a resident company. Bugum Ltd has had financial setbacks in its fortunes over the last couple of years and became vulnerable to predators.
Required:
Advise the management of Farmer Ltd, what the tax implications are if Farmer Ltd acquires more than 50% of the underlying ownership of Bugum Ltd.
Answer
Mergers and acquisitions have blessings for the predator(s) and may equally bring losses to the predator. Therefore, under section 62 of Act 896 (Act 2015), the following shall not be benefitted by the new owners, that is, Farmer Ltd in this case:
- The financial cost incurred under section 16 cannot be beneficial to the new owners.
- Farmer Ltd shall not benefit from any loss incurred under section 17.
- Farmer Ltd shall not claim any bad debts incurred by previous managers.
- Farmer Ltd shall not carry back loss if it is in a long-term contract.
- Farmer Ltd shall file two tax returns, one before and one after the change in underlying ownership.
- Farmer Ltd will benefit from the new values of depreciable assets.
- Farmer Ltd can rebrand to create a value-added image for the entity.
- Tags: Corporate Tax, Mergers, Ownership Changes, Tax implications
- Level: Level 3
- Topic: Mergers, amalgamation, and reorganization
- Series: MAY 2021
- Uploader: Joseph