With effect from 14 May 2013, the tax consolidation law is to be amended with the effect that tax consolidated groups acquiring subsidiary members will be required to include in their taxable income amounts equivalent to deductible liabilities recorded by the subsidiary members at the joining time. The time at which the amounts are included in taxable income will depend on the nature of the liability.
The proposed changes are based on the Board of Taxation’s recommendations to the Government in its 2013 report, 'Post-Implementation Review – Certain Aspects of the Consolidation Tax Cost Setting Report'. The recommendation was directed at ensuring that the overall taxation outcomes from the sale of a subsidiary member mirror the overall economic outcomes. This is logical.
The net effect of the changes will be that the acquiring consolidated group will get no net tax deduction for the inherited liabilities.
Until such time as there is clarity as to how the law will operate, some purchasers will understandably model their price on an effectively non-deductible liability basis. The purchaser wanting to get full value from its purchase is something I do understand!
These changes are not yet legislated, but should be considered by all tax consolidated groups when assessing the net value accruing to the group when acquiring new subsidiary members.