“Transfer of business; the tax man’s business?”
In an effort to render the Mauritius tax system better understood by the taxpayer, we endeavour to present select case studies where rulings have been passed, thus providing our interpretation of such sections of the relevant taxation law of the land.
Under section 159 of the Income Tax Act, any person who derives or may derive any income, may apply to the Director General for a ruling as to the application of the Act to that income.
Case Study 28: What does the law have to say about taxation of corporates in the context of disincorporation?
Facts:
ABC is a company incorporated in UK and it carries out banking business through a branch in Mauritius, hereinafter referred to as Company Z. The branch is duly registered in Mauritius as a foreign company and holds a banking licence under the Banking Act. D Ltd is a Mauritian incorporated company and is wholly owned by ABC.
Company Z and D Ltd have approved a scheme under which D Ltd would undertake the banking business currently being operated by Company Z from both a commercial and legal standpoint. The scheme has been presented to the Bankruptcy Division of the Supreme Court in the form of a petition in accordance with Sections 261 to 264 of The Companies Act. The implementation of the scheme would involve the transfer of the whole of the current business of Company Z to D Ltd and the latter shall issue shares to ABC in consideration for the transfer of the business.
Point at issue
Whether the implementation of the scheme will give rise to any corporate tax consequences under the Income Tax Act.
Ruling
On the basis of the facts given, there will be no corporate tax on transfer of the business. The provisions of Section 56 of the Income Tax Act will apply.
Under Section 56 of the Income Tax Act, it is stated that the provision of Section 16 shall apply.
Extract of the Section 16 of the Income tax act
16. Apportionment of income on incorporation and disincorporation
(1) Where a business is transferred to a company on incorporation and the persons who carried on that business prior to incorporation are the shareholders in that company immediately after incorporation, the Act shall have effect as if –
(a) the business had not ceased or been transferred on incorporation; and
(b) at all times prior to incorporation the company had been carrying on the business.
(2) Where a business is transferred by a company on disincorporation and the persons who carry on that business after disincorporation were the shareholders in that company immediately prior to disincorporation, the Act shall have effect as if –
(a) the business has not ceased or been transferred on disincorporation; and
(b) at all times prior to disincorporation that person or those persons had been carrying on the business.
(3) Where incorporation or disincorporation takes place during an income year, the gross income of the business for that income year shall be apportioned between the company and the person carrying on the business on the basis of the proportion of the income year before and after incorporation or disincorporation.
