29 June 2012

The updated e-Tax Guide issued by IRAS sets out the details of the mergers and acquisitions  (“M&A”) allowance and stamp duty relief scheme (“M&A scheme”).  The M&A scheme was introduced in Budget 2010 and enhanced in Budget 2012.

The previous e-tax Guide published on 27 June 2011 has been updated for the following enhancements to the M&A scheme announced in Budget 2012:

•  relaxation of conditions for share acquisitions made during the period 17 February 2012 to 31 March 2015, and
•  introduction of a double tax deduction scheme for qualifying transaction costs incurred on qualifying share acquisitions made during the period 17 February 2012 to 31 March 2015.

Under the scheme, subject to conditions, a company (“acquiring company”) that acquires the ordinary shares of another company (“target company”) during the period 1 April 2010 to 31  March 2015 (both dates inclusive) is granted an M&A allowance, equal to 5% of the value of the acquisition.

An acquiring company may acquire the ordinary shares of a target company either directly or through a wholly owned subsidiary that is incorporated for the primary purpose of acquiring and holding shares in other companies (“acquiring subsidiary”).  In both situations, the M&A allowance is granted only to the acquiring company.

The maximum amount of M&A allowance granted to an acquiring company is $5 million for  each  year of assessment (“YA”) for all qualifying share acquisitions executed in the basis period for that YA (i.e. 5% of the purchase consideration of qualifying share acquisitions aggregating up to $100 million).

The M&A allowance on the purchase consideration (including any contingent consideration) incurred for any qualifying share acquisition is allowed over five years on a straight-line basis (“5-year write-down period”) and cannot be deferred.

Under the scheme, subject to conditions, stamp duty relief  is granted on any contract or agreement for sale of equitable interest in ordinary shares or on any transfer documents for the acquisition of the ordinary shares under an M&A deal. The instrument must be executed during the period 1 April 2010 to 31 March 2015 (both dates inclusive) to be eligible for the relief.

The acquiring company may acquire the ordinary shares of the target company directly or through an acquiring subsidiary. The amount of stamp duty relief which is granted to the acquiring company only is capped at $200,000 for each financial year  (“FY”).

Where both stamp duty relief and M&A allowance are claimed on the same qualifying share transaction, the FY or elected 12-month period  for the purpose of stamp duty relief must be identical to the basis period or elected 12-month period for the purpose of claiming M&A allowance.

The scheme seeks to help Singapore-based companies which carry on substantive business operations in Singapore to grow by acquisition subject to qualifying conditions. It is not intended to apply to:

• an internal restructuring/ reorganisation of companies undertaken within a corporate group except where such a restructuring/ reorganisation also results in the corporate group acquiring a higher proportion of ordinary share ownership in a target company after the event,
• the setting up of new (subsidiary) companies within a corporate group to carry on business activities,
• the acquisition of ordinary shares which form part of the acquiring company’s trading stocks.

For further details, please refer to the e-Tax Guide.

Source: This article was extracted from the Inland Revenue Authority of Singapore (IRAS) website. Visit www.iras.gov.sg for more information.