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Listed companies that undertook slump sale may have to restate earnings following new rules
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The new slump sale rules have a precise methodology that a company is required to use while calculating the valuation of the slump sale transaction. In most cases, this would mean that companies would see the transaction value go up, along with the tax liability.
Agencies
In some cases, internal restructuring and inter-group transactions too are being done through this method.
Listed companies that have undertaken slump sales and declared their results will have to recalculate the tax paid or the amount they have provisioned for such transactions, requiring the firms to restate earnings.
Businesses may have to reassess tax liability, ongoing M&As after slump sale rule change
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The slump sale amendment rules notified on Monday by the Central Board of Direct Taxes provide for taking the higher of the fair value of the business transferred or the fair value of the consideration received as the deemed consideration for computing capital gains on slump sale or exchange, even if the actual consideration received is lower.
Businesses would have to reassess their tax liabilities and possibly re-structure mergers and acquisitions in order to comply with new rules for computation of fair market value of capital assets in slump sales.
The merger and acquisitions (M&A) transactions are set to become costlier after the Budget announced on Monday proposed that goodwill (including existing goodwill) will not be eligible for tax depreciation. The amendments on goodwill are retrospective as depreciation on any past goodwill, partly claimed in the past, would not be available going forward. Therefore, while the amendment is prospective, it would adversely impact any goodwill created before March 31, 2021, say tax experts. The amendment is retrospective from April 1, 1998 and will also impact internal corporate restructuring where goodwill was claimed. ‘’This may lead to more litigation,” said a top tax expert.
January 28 2021
When COVID-19 spread around the globe in the early months of 2020, it caught the world by surprise and many businesses were unprepared. Governments and organisations responded in various ways, with different impacts on the business world generally, and merger and acquisition (M&A) activity in particular, although there have been some similarities as well.
Uncertainties remain but while lack of preparation was an issue at the beginning of 2020, it no longer needs to be an obstacle as businesses can identify the opportunities available to them now so as to better position themselves for success in 2021 and beyond.
Initial impact and response by region