- 15 Marks
AT – Nov 2022 – L3 – Q5 – Taxation and Corporate Governance
Analyze the tax implications for Yemmysea Beverages Limited’s proposed merger and acquisition arrangements, covering scenarios where a company absorbs another, a merger results in business cessation, and a business is sold or transferred. Additionally, explain the regulatory powers of the FIRS in mergers and acquisitions.
Question
In its bid to increase market power, growth, and enhance operating economies, the Board of Directors of a medium-sized beverage company, Yemmysea Beverages Limited, located in Abeokuta, is considering proposals for a merger or acquisition with another business entity in the same industry. The Chairman of the Board found all the proposals attractive.
However, the Financial Accountant advised that the Board should consider the tax implications associated with each proposed merger or acquisition arrangement. To address this, a reputable tax consulting firm, experienced in mergers, acquisitions, and reorganizations, was recommended to provide expert analysis.
Your firm has now been approached to offer professional advice on the tax implications of each of the following merger or acquisition arrangements:
- Proposal 1: When an existing company absorbs another existing company.
- Proposal 2: When a merger results in the cessation of business.
- Proposal 3: When a business is sold or transferred.
Required:
As the company’s Tax Consultant, submit a report to the Managing Director explaining the following:
- Tax implications when an existing company absorbs another existing company.
(5 Marks) - Tax implications when a merger results in the cessation of business.
(3 Marks) - Tax implications when a business is sold or transferred.
(3 Marks) - The powers of the Federal Inland Revenue Service (FIRS) on issues concerning mergers and acquisitions of companies.
(4 Marks)
Total: 15 Marks
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