Hong Kong Published Advance Tax Ruling Case No. 65

; posted on
October 4th, 2018

The Hong Kong Inland Revenue Department released Advance Ruling Case No. 65 to deal with tax treatment of assets, liabilities and losses in business combination.

Background and Arrangement

In this case, Company A and Company B are private limited companies incorporated in Hong Kong. Company B became a directly wholly owned subsidiary of Company A in July 2012. Company A recorded accumulated losses prior to the amalgamation. In 2017, Company A and Company B were amalgamated with Company A as the amalgamated company. After the amalgamation,

  • Company B ceased to exist as an entity separate from Company A;
  • Shares of Company B were cancelled without payment or other consideration; and
  • Company A succeeded to all the property, rights and privileges, and all the liabilities and obligations of Company B, without any sale of assets or liabilities.

The Ruling

Upon the amalgamation, Company A succeeded to all the assets and liabilities of Company B. Such succession shall not constitute a sale, transfer or other disposal of or a change in the nature of those assets and liabilities for the purposes of the Inland Revenue Ordinance (IRO). No profit or loss shall arise or be deemed to arise in Company A and/or Company B as a result of the amalgamation.

Unutilized tax losses sustained by Company A prior to the amalgamation will be carried forward and will be available for set off against the Assessable Profits derived after the amalgamation as follows:

  • Tax losses incurred before Company B becoming a wholly owned subsidiary of Company A can only be used to set off against profits derived by Company A from its own business; and
  • Tax losses incurred after Company B becoming a wholly owned subsidiary of Company A can be used to set off against profits derived from the business succeeded from Company B.

Source: HK Inland Revenue Department

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