Mergers and qualification for tax purposes – flowchart

Merger criteria flowchart

The flowchart in this article outlines the criteria that determine whether or not a Merger is qualified for Japanese tax purposes. Where a merger is qualified for Japanese tax purposes then, in principle, the Merger is not treated as a taxable event and gains or losses, including the recognition of goodwill, that would otherwise be crystallised in the Ceasing Company in the Merger are deferred. It may also be possible to carry over losses in a Tax Qualified Merger to the Surviving Company and avoid shareholders of the Surviving Company being taxed on Deemed Dividends as explained in this link..

The flowchart starts at the conditions related to non-cash consideration in the merger and then works through the different sets of criteria that apply to mergers of companies that are under complete ownership in a group, under 50% group ownership or where there is 50% or less common ownership between the Ceasing and Surviving Companies.

Please look out for coming articles on Mergers and other Corporate Reorganisations, the criteria for and impacts of qualification.

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