By: Andrea Mendoza Molina
For legal purposes, a merger is considered to exist when two or more companies are merged into a single company or when they are merged to create a new company. In legal terms, the company that disappears is known as the merged company and the company that survives and absorbs the previous one or the company that is created, as the case may be, is considered the merging company.
Now, for tax purposes, the merger of companies is considered as an alienation and therefore has the tax effects of a taxable activity, that is, an activity for which taxes must be paid. In this sense, the merged company would have to consider that it disposes of assets for tax purposes and determine, where appropriate, the corresponding tax gain or loss for income tax (ISR). It is important to note that all the rights and obligations of the merged company are also transferred to the merging company by reason of the merger.
Notwithstanding the foregoing, the Federal Tax Code (CFF) establishes that a merger is not considered a transfer when the following requirements are met:
- Submit the merger notice referred to in the CFF Regulations (Notice of cancellation and/or registration of companies in the RFC).
- Carry out the same activities for one year, that is, after the merger, the merging company continues to carry out the activities that it and the merged company carried out before the merger, for one year after the merger.
This last requirement is not enforceable if the following assumptions are met:
a. When the income from the main activity of the merged company corresponding to the year prior to the merger derives from the leasing of goods that are used in the same activity of the merging company.
b. When in the year prior to the merger, the merged company has received more than 50% of its income from the merging company, or when the merging company has received more than 50% of its income from the merged company. However, when the merging company is liquidated before one year after the merger, this requirement will not be necessary.
c. That the merging company submit the tax returns for the year and the informative returns that correspond to the merged company.
Tax losses in a merger
Article 57 of the Income Tax Law (LISR) establishes that a fiscal loss is obtained when the deductions authorized in a fiscal year (years for fiscal purposes) are greater than the cumulative income of that same fiscal year. The tax loss can be used to reduce the tax profit, that is, reduce the base on which ISR is taxed, for the following 10 years until said loss is exhausted.
The right to reduce tax losses is personal to the person who suffers them and cannot be transferred to another person or as a reason for a merger. Derived from the foregoing, in the event that a merger is carried out between two companies, the right to reduce the pending tax losses of the merged company may not be transferred to the merging company.
However, article 58 of the LISR establishes that, in the event of a merger, the merging company may only reduce the fiscal loss pending use of the merged company, when the merging company carries out activities corresponding to the same line of business as the merged company, i.e. that is, that it is dedicated to the same sector or economic area, in which the fiscal loss occurred.
Source:
https://www.diputados.gob.mx/LeyesBiblio/pdf/LISR.pdf
https://www.diputados.gob.mx/LeyesBiblio/pdf/CFF.pdf