REVIEW OF THE MONTH: TAX POINTS TO CONSIDER IN A MERGER OF COMPANIES
A merger is considered to be the legal figure in which two or more companies join their assets in a new or existing company. The merged company is the one that disappears and the merging company the one that subsists and absorbs the previous one, or the one that is created as a result of the merger. The use of this figure has become more popular and is used as a business strategy to add value, facilitate processes and reduce administrative costs.
The Fiscal Code of the Federation (CFF), article 14 section IX, stipulates that the merger is understood as the sale of assets when it does not comply with the requirements of article 14-B of the same Code. Then, the merged company would have to consider that it disposes of assets for tax purposes when it does not comply with the aforementioned requirements, and determine, where appropriate, the corresponding tax gain or loss for ISR purposes, as well as transfer VAT and / or IEPS for the transfer of ownership and issue the corresponding CFDI to the merging company. It is important to note that all rights and obligations of the merged company are also transferred to the merging company on the occasion of the merger.
Assumptions in which there is no disposal
It is considered that there is no disposal in the case of a merger of companies when the following is fulfilled:
- The merger notice is filed
Depending on the type of merger, it could be procedure 86 / CFF Notice of cancellation in the RFC for merger of companies or 231 / CFF Application for registration and cancellation in the RFC for merger of companies. However, both notices require the Official Form RX “Form of liquidation, merger, spin-off and cancellation notices to RFC”.
It is important to mention that derived from this notice, the tax authority may request additional information before granting the cancellation of the RFC.
- Do the same activities for a year
It is stipulated that the merger must carry out the same activities that it and the merged did for a minimum period of one year. Since no additional rules are mentioned, it would be considered that having the economic activity registered with the SAT and carrying out the activity, regardless of the amount of income it generates, is sufficient to meet this requirement.
It is possible not to meet the activity requirement for one year as long as:
- The income from the predominant activity of the merged, understood as the economic activity for which in the fiscal year the taxpayer obtains the highest income with respect to any other activity (RCFF 45), corresponding to the fiscal year immediately prior to the merger, derive from the lease of assets used by the merger in its activities.
- In the year immediately prior to the merger, the merged company received more than 50% of its income from the merger or vice versa.
It would not be necessary to meet this requirement when the merging company is wound up before one year after the merger.
- Declarations of the Merged (s)
The merging company must present the tax returns for the year and the information that correspond to the merged company or companies.
It is necessary to understand the different procedures and tax effects that a merger entails, as well as its consequences for workers, partners, interested third parties and the tax authority. Let me mention those that I consider to be the most relevant:
- The merging company will have to make the anticipated annual declaration of the merged company, and even though article 76 section V of the Income Tax Law (LISR) grants 3 months after the end of the year, the merger notice requests the declaration annual as a requirement and grants 1 month after the merger to do so, something that the legislator should modify.
- The merged company, in case of having workers, will have to carry out an employer substitution by merger. This involves procedures before the IMSS, INFONAVIT and local Conciliation and Arbitration Boards, it is important to plan these procedures in advance, since they may have to be carried out in several delegations.
- The new balances of CUFIN and CUCA must be determined, in the first case only the accounts will have to be added, however, for CUCA it is necessary to consider that in vertical mergers (companies with a shareholding relationship between them) the balance is not considered of CUCA of the merged companies, in the proportion in which the shares of said companies are owned by the merger (77 and 78 LISR).
- The tax losses of the merged companies will not be transferable to the merger, and the tax losses of the merger may only be reduced against the tax profit corresponding to the same lines in which the loss occurred (57 and 58 LISR). The wording of this paragraph leaves doubts to the taxpayer, since the word “money order” is very broad and could integrate various economic activities, the SAT has commented that it should be referred to article 2, section VIII of the Law of Business Chambers and their Confederations :
“Business: area or sector of the economy that due to its characteristics are integrated into a single group of productive activity, in accordance with the official classification of productive activities in force recommended by the National Institute of Statistics, Geography and Informatics. “
With this definition, you can go to Annex 6 of the RMF 2020 to view the Catalog of Economic Activities and its different sectors, however, the authority should establish a definition in the LISR or fiscal miscellaneous.
- The balances in favor of VAT and ISR of the merged companies may be credited, requested in return or offset by the merger, as appropriate to the nature of the balance in favor (LIVA 4, CFF 14-B and CFF 22).
Finally, do not forget to make the relevant notices to the Ministry of Economy in the Electronic System of Publications of Commercial Companies. Please do not hesitate to contact us with any questions or comments related to this document.
Author: MICPF Adrián Nevárez Jácquez