Transfer of assets refers to the transfer of assets from one entity to another, often as part of are structuring, merger or business transfer. Transfer of assets can have tax consequences and requires an assessment of the value of the transferred assets. This is called a valuation report, which must be signed by an approved auditor.
Frequently Asked Questions About transfer of assets
What is a transfer of assets?
A transfer of assets is a restructuring where a company transfers all or part of its business to another company in exchange for receiving shares as consideration. The purpose is typically to combine or separate activities in separate companies, so that the business gets a more appropriate structure.
For tax purposes, a transfer of assets can be carried out tax-free if the conditions are met, including that it concerns an entire business or an independent branch of a business, and that the consideration exclusively consists of shares in the receiving company.
What is the difference between transfer of assets and partial demerger?
The difference between transfer of assets and partial demerger is that in a transfer of assets only a business or activity is transferred from one company to another, while the contributing company continues unchanged.
In a partial demerger, on the other hand, the company is divided up, so that part of its assets and liabilities are transferred to a new or existing company, and the capital owners receive consideration in the form of shares in the receiving companies.
Transfer of assets thus does not change the ownership circle, while partial demerger does.
What happens if the conditions for tax-free transfer of assets are not met?
If the conditions for tax-free transfer of assets are not met, the transaction is considered taxable.
This means that taxation occurs on the transferred assets, as if they had been sold at market value at the time of the transfer.
More specifically, this means:
• The transferring company is taxed on the gain on the assets that are transferred.
• The receiving company gets a new tax acquisition sum corresponding to the assets' market value.
• If cash payment is included instead of or in addition to shares/ownership interests, the transaction can no longer be regarded as tax-free.
• Taxation can arise for the company's owners if values are in fact transferred between different ownership circles.
Are shareholders taxed in a transfer of assets?
In a transfer of assets, shareholders are as a general rule not directly taxed if the transaction is carried out tax-free.
In a tax-free transfer, the transferring company receives shares or ownership interests in the receiving company as consideration, and the shareholders' ownership relationship therefore does not change directly.
The existing shareholders are only affected indirectly because the transferring company's assets and values change composition. The tax position remains the same, however, as long as they continue to own the shares in the company.
If the transfer does not meet the conditions for tax exemption, it is treated as a taxable transaction. In that case, taxation of the shareholders can arise if they e.g. receive shares directly as part of the restructuring, or if values are transferred between different ownership circles.
Can a tax-free transfer of assets take place with cash consideration?
No – a tax-free transfer of assets cannot take place with cash consideration, as the main rule in the Merger Tax Act is that the consideration must consist of capital shares.
The purpose of this rule is that no real economic disposal may take place, but only a restructuring of the ownership.
If cash is paid out, the transaction is regarded as a partial sale, which can trigger taxation.
Disclaimer
As the above is for guidance purposes only, we accept no liability for decisions that may be made based on the above without prior individual advice. We accept no liability for errors and omissions.