Capital Gains

Transfer of Assets and Liabilities

Under the new corporate tax law, effective 1 January 2025, the gains/ losses on the transfer of assets and liabilities under corporate restructuring will be included in the taxable income of the transferor entity. The acquiring entity must determine its taxable income using the carrying value of the acquired assets and liabilities used for determining the financial accounting net income or loss.

Qualifying Reorganizations

In cases of qualifying reorganizations, i.e., where the settlement of consideration for the transfer of assets and liabilities is by the issue of equity interest (in whole or in significant part), the gains/ losses on the transfer of assets and liabilities will not be included in the taxable income of the transferor entity. However, the acquiring entity must determine its taxable income using the carrying values of the acquired assets and liabilities.

Any non-qualifying gain resulting from the transfer of assets and liabilities under a qualifying reorganization must be included in the taxable income of the transferor entity, and the acquiring entity must determine its taxable income using the transferor entity’s carrying values of the acquired assets and liabilities upon transfer subject to an adjustment to account for the non-qualifying gain or loss.

Carry Forward and Set-off of Accumulated Loss

Transfer of Assets and Liabilities

Any tax loss carryforward of the transferor entity until transfer, including any gain or loss resulting from transfer, will remain with the acquiring entity.

Qualifying Reorganizations

In case of a demerger or similar transactions where both entities continue to exist, a part of the tax loss carryforward of the transferor entity is transferred to the acquiring company, and the tax loss carryforward of the transferor entity is reduced accordingly. The part loss to be transferred is determined as follows:

Tax loss carryforward of the transferor entity* (Net carrying value of assets and liabilities

transferred (subject to certain adjustments)/ Net carrying value of assets and liabilities

immediately prior to transfer (subject to certain adjustments))

Further, where only one entity (either the transferor entity or the acquiring entity) survives after the reorganization, the tax loss carryforward will remain with the entity that continues to exist.

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