TAXATION UNDER MERGER AND ACQUISITIONS
Before the consummation of a business merger or acquisition, it is imperative to adhere to the stipulations of Section 29(12) of the Companies Income Tax Act (CITA). This provision mandates the notification of the Board that is, the Federal Inland Revenue Service, and the acquisition of their guidance and clearance regarding potential tax liabilities under the Capital Gains Tax (CGT) Act.
Regarding Capital Gains Tax (CGT), it is explicitly stated that the sale of shares is exempted from this tax by the Finance Act 2023. Similarly, in the event of shares being acquired as part of a business sale through a Merger and Acquisition (M&A) process, such transactions are exempt from CGT.
With regards to transaction taxes such as Value Added Tax (VAT), Withholding Tax (WHT), and Stamp Duties, pertinent legislation and amendments govern the applicable tax implications. For instance, VAT does not apply to the sale or transfer of an asset to a Nigerian company for business considerations, provided the companies are related and the asset is not resold within 365 days after the restructuring. Conversely, intangible assets, including intellectual property rights and contractual rights, are now subject to VAT following the resolution provided by the Finance Act 2023.
In the case of Withholding Tax, it is important to note that it does not apply to the purchase consideration of a business. However, WHT will be deducted from legal fees, professional fees, etc., related to the M&A at the applicable rate and remitted to the relevant tax authority.
The Stamp Duty Act mandates that all contractual agreements incurred during the M&A process are liable to stamp duty at the prevailing rate. Notably, certain exemptions apply under Sections 104 and 105 of the Stamp Duty Act, on property and share transfers between related parties, contingent upon business reconstruction or amalgamation.
Under the purview of the Companies Income Tax, specific provisions (Section 29(9)) offer discretionary application of the commencement and cessation rules, contingent upon the companies being related and the asset not being resold within 365 days following reorganization. Assets are also transferred at their Tax written-down value between related entities, affecting initial allowance or investment allowance eligibility for the acquiring company.