Amalgamation Of Companies In Singapore And Its Taxation
Amalgamation is the process whereby two or more companies are combined so that the property, rights, privileges, liabilities and obligations of the amalgamating (discontinuing) Singapore companies are transferred to, and vest in, one amalgamated company. Besides transfers of shares and/or businesses, private Singapore incorporated companies looking to restructure should keep in mind the option of carrying out an amalgamation pursuant to the Companies Act.
Various forms of amalgamations are provided for under the Companies Act. Depending on the circumstances, a court order may be required. Before 30 January 2006, amalgamations required court approval and supervision. Under the new Act, court approval is not required provided that:
- the combining companies are solvent,
- amalgamation is approved by special resolution of shareholder at least 75% (depending on constitution as higher amount may be stated)
- declaration of solvency by directors of each combining company
Amalgamations where a court order is not required are generally referred to as voluntary amalgamations.
Forms of Voluntary Amalgamations
There are two forms of voluntary amalgamation procedures, the “short form” procedure and the procedure under sections 215B and 215C of the Act (often referred to in its abbreviated term, the “long form” procedure).
Short form amalgamations are available solely for companies within the same corporate group and where there are no minority interests. This procedure is only permitted between a holding company and one or more of its wholly-owned subsidiaries, or between two or more wholly-owned subsidiary companies of the same corporation.
Long form amalgamations are available to any company, and may allow two companies to continue as one company (which may be one of the amalgamating companies), or a new company. Due to the need to protect minority interests, more safeguards are built into the long form procedure.
Short Form Amalgamation
The short form amalgamation procedure is suited for intra-group restructurings and reorganisations. With the recent amendments to the Act, companies in a parent-subsidiary relationship may now amalgamate such that the subsidiary continues as the amalgamated company.
Broadly, the short form amalgamation procedure involves the following:
- Convening a general meeting of each amalgamating company to approve the amalgamation;
- Giving written notice of the proposed amalgamation to secured creditors, if any, of each amalgamating company, not less than 21 days before the date of the general meeting;
- Prior to the general meeting, the board of directors of each amalgamating company making statements and declarations of solvency, in compliance with the statutory requirements, in relation to the amalgamated company;
- Passing a special resolution to approve the amalgamation, which must contain certain prescribed terms, at the general meeting; and
- Lodging the relevant amalgamation documents and certain other compliance declarations with ACRA, and paying the prescribed fee.
Long Form Amalgamation
As mentioned above, the long form amalgamation procedure is available to companies even if they do not belong to the same group, but contains additional protections to require enhanced disclosure. The following summarises the additional steps, over and above those for a short form amalgamation, which would need to be undertaken:
- An amalgamation proposal must be prepared and must set out, among other things, the necessary prescribed information relating to the amalgamated company and how the amalgamation is to be completed;
- In addition to solvency statements and declarations, the board of directors of each amalgamating company must pass a resolution that the proposed amalgamation is in the best interest of that amalgamating company;
- The statements and declarations of solvency by the board of directors must be given both in relation to each amalgamating company as well as the amalgamated company;
- Certain prescribed documents and information pertaining to the amalgamation must be provided to the secured creditors, if any, and every member of each amalgamating company, not less than 21 days before the general meeting to approve the amalgamation proposal; and
- A notice of the proposed amalgamation must also be published, not less than 21 days before the general meeting, in at least one daily English newspaper circulating generally in Singapore, and which must advertise the availability of the amalgamation proposal for inspection by any member or creditor of an amalgamating company, and such person’s entitlement to be supplied a copy thereof.
Effect of Amalgamations
On the date shown in a notice of amalgamation –
- the amalgamation shall be effective;
- the amalgamated company shall have the name specified in the amalgamation proposal;
- all the property, rights and privileges of each of the amalgamating companies shall be transferred to and vest in the amalgamated company;
- all the liabilities and obligations of each of the amalgamating companies shall be transferred to and become the liabilities and obligations of the amalgamated company;
- all proceedings pending by or against any amalgamating company may be continued by or against the amalgamated company;
- any conviction, ruling, order or judgment in favour of or against an amalgamating company may be enforced by or against the amalgamated company; and
- the shares and rights of the members in the amalgamating companies shall be converted into the shares and rights provided for in the amalgamation proposal.
In view of the above, amalgamation allows the transfer of property, rights, privileges, liabilities and obligations of the amalgamating (discontinuing) company to the amalgamated company. Whereas in the case of merger and acquisitions, assets and liabilities have to be legally assigned. The transferor company still remains after the transfer of assets and liabilities, so there is still a need to strike off and liquidate it. Therefore, it is simpler to amalgamate.
Amalgamating companies are treated as having ceased businesses and disposed of their assets and liabilities and the amalgamated company having acquired or commenced a new business. This treatment may give rise to taxable gains in the hands of the amalgamating companies because revenue assets are subject to tax based on either the transfer price or open market value (OMV). Balancing allowance or charge on plant and machinery or industrial buildings will also have to be accounted for upon disposal, unless the companies involved in the amalgamation are eligible to make an election under section 24 of the Singapore Income Tax Act.
To minimise the tax consequences arising from amalgamations, a new tax legislative provision, (Section 34C of the Singapore Income Tax Act) for specified statutory amalgamations (hereinafter referred to as “qualifying amalgamations”), is introduced. The new tax framework recognises the consequences as provided in the Companies Act or the Banking Act for such qualifying amalgamations and gives effect to by aligning the tax treatments for amalgamations as such.
The new tax framework is intended to give tax effect to qualifying amalgamations as if there is no cessation of the existing businesses by the amalgamating companies (and hence no acquisition of new businesses by the amalgamated company) and all risks and benefits that exist prior to the merger are transferred and vested in the amalgamated company. On the date of amalgamation, the amalgamated company would be treated as having “stepped into the shoes” of the amalgamating companies and continued with the businesses seamlessly. Hence, the tax treatment of provisions, trading stocks, capital allowances, accruals, prepayments etc., transferred to the amalgamated company is ascertained on the basis that the businesses of the amalgamating companies that have been taken over entirely have not ceased but continue in the amalgamated company, as part of the business (or enlarged business) of the amalgamated company. Noteworthy point is that unabsorbed tax loss items can be transferred from the amalgamating company.
For the new tax framework, an irrevocable election must be made by submitting the prescribed form along with other information to IRAS within 90 days from the date of the qualifying amalgamation.
Information to be furnished
The amalgamated company which elects for the new income tax framework to apply is required to furnish the following information:
- reasons for the amalgamation;
- a copy of the amalgamation proposal;
- option on whether the trading stock would be transferred at Net Book Value or Fair Value;
- a list giving details of the investment assets taken over by the amalgamated company; and
- finalised set of accounts and tax computation(s) for the current year of assessment up to the date of amalgamation of all the amalgamating companies that ceased to exist and all other outstanding returns of these companies.
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