Mergers & Acquisitions Tax Developments - Rules For Carry Forward Of Losses Changed

According to current legislation losses may be carried forward against future profits for 10 years. Similar provisions apply on non-used tax credits under the imputation system. The right to carry forward losses is lost if a change of ownership of more than 50% of the shareholdings in a company takes place.

However, under new provisions in tax law enacted in 1996 even an indirect change of ownership may cause a loss of right to carry forwards, which might be of considerable concern in a M&A.

If a company A holds more than 20% of the shares in a company B, a transfer of ownership of the shares in company B held by company A is considered to take place if more than 50% of the shares in company A are transferred to new owners. Company B will, however, not lose its right to its losses until altogether more than 50% of the shares in company B are transferred. Such would be the case if other owners of company B shares, with each ownership exceeding 20% of the shares in B, should