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How are def' tax assets transferred in a merger?

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Please can anyone help to clarify on this topic...

Scenario: Two limited trading companies that belong to the same group being merged in to one single trading entity. Post-merger the legal entity A will continue trading, having acquired the assets of legal entity B. Entity B will continue in existence as a dormant entity. Can the DTA's of entity B, which are derived from capital allowances (where allowances have been disclaimed in previous years), be transferred and retained in full in entity A? Is there a risk that some of the DTA will be lost if the accounting is not handled correctly? If transferrable, how would the DTA's be valued?

Thank you in advance, Martin


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By johnt27
08th Jul 2019 16:14

The answer is: it depends!

It depends on how the merger/transfer of trade and assets occurs ie at NBV or otherwise at cost/MV.

If it happens at NBV/TWDV then deferred tax will transfer at the same value. If it doesn't then the deferred tax calculations will be recalculated in entity A as would be normal as if this happened at arms length.

That assumes both entities calculate DT at the same rates...

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