{"id":13579,"date":"2020-07-24T18:40:03","date_gmt":"2020-07-24T13:10:03","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=13579"},"modified":"2024-07-02T17:19:32","modified_gmt":"2024-07-02T11:49:32","slug":"impact-of-gst-on-merger-and-acquisition","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-merger-and-acquisition\/","title":{"rendered":"Impact of GST on Merger and Acquisition: Things you must know!"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The\nIndian economic reforms have created a lot of scope for mergers and\nacquisitions both in the domestic and global markets. In today&#8217;s commercial\nscenario, M&amp;A has gained considerable significance as companies compete\nwith each other on the national and international levels. Companies opt for\nmergers to restructure their organization and expand their market presence;\ncompanies take over other companies as part of acquisitions.&nbsp; <\/p>\n\n\n\n<p>The effect and impact of taxes the primary matter with the corporations who are going to involve in the procedure of Merger and Acquisition and the impact of GST on that Merger and Acquisition. <a href=\"https:\/\/corpbiz.io\/due-diligence\"><strong>Due diligence <\/strong><\/a>is essential for such professional amalgamations. Mergers and acquisitions needed an in-depth analysis of cost benefits to understand the impact of GST on such kinds of processes.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-merger-and-acquisition\/#The_practice_of_Merger_and_Acquisition\" >The practice of Merger and Acquisition<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-merger-and-acquisition\/#Reasons_behind_the_Merger_and_Acquisition\" >Reasons behind the Merger and Acquisition<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-merger-and-acquisition\/#The_procedures_of_Merger_and_Acquisition\" >The procedures of Merger and Acquisition<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-merger-and-acquisition\/#Different_categories_of_Merger\" >Different categories of Merger<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-merger-and-acquisition\/#Impact_of_GST_on_Merger_and_acquisition\" >Impact of GST on Merger and acquisition<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-merger-and-acquisition\/#Registration_under_transfer_or_acquisition\" >Registration under transfer or acquisition<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/impact-of-gst-on-merger-and-acquisition\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_practice_of_Merger_and_Acquisition\"><\/span>The practice of Merger and Acquisition <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>It can take place through the following ways \u2013<\/strong><\/em><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" width=\"525\" height=\"439\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-115.png\" alt=\"practice of Merger and Acquisition \" class=\"wp-image-13580\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-115.png 525w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-115-300x251.png 300w\" sizes=\"(max-width: 525px) 100vw, 525px\" \/><\/figure><\/div>\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Reasons_behind_the_Merger_and_Acquisition\"><\/span>Reasons behind the Merger and Acquisition<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Various\nreasons for Merger and acquisition are as follows:-<\/em><\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Synergy<\/h3>\n\n\n\n<p>The foremost reason for <a href=\"https:\/\/corpbiz.io\/mergers-and-acquisitions\"><strong>Mergers and acquisitions<\/strong><\/a> is that the company desires to create synergy. By the amalgamation of two business events, overall performance efficiency tends to increase.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Diversification<\/h3>\n\n\n\n<p>Sometimes\ncompanies merge to diversify their activity through amalgamation. Two companies\nmay join in emphasizing its creation and service to improve competitive control\nover other companies providing the same goods and provisions.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Growth<\/h3>\n\n\n\n<p>A\ncorporation may not produce through internal development, but completed over a\nmerger, which is an inexpensive and less risky process company can seek its\ngrowth. An alliance can allow the acquiring company to grow the market without\ndoing any investment or lifting. Acquiring a company can buy a competitor&#8217;s\nbusiness at a specific price, which is also known as a horizontal merger.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Eliminating the competitor<\/h3>\n\n\n\n<p>Merger\nand Acquisition allow eliminating many future competitors and can also give\naccess to a larger marketplace share. With these, businesses will be able to\nsave their publicity expense, which can lead to reducing the value of the\nproduct, and the consumer can also get benefit from the reduced rate.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_procedures_of_Merger_and_Acquisition\"><\/span>The procedures of Merger and Acquisition<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" width=\"602\" height=\"323\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-116.png\" alt=\"procedures of Merger and Acquisition\" class=\"wp-image-13581\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-116.png 602w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-116-300x161.png 300w\" sizes=\"(max-width: 602px) 100vw, 602px\" \/><\/figure><\/div>\n\n\n<h3 class=\"wp-block-heading\">Merger <\/h3>\n\n\n\n<p>One\nof the most common acquisition methods is through a merger where two companies\nmerge to form a single company.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Demerger<\/h3>\n\n\n\n<p>It\nis a process where, whereby the business\/undertaking of one company is demerged\ninto the resulting company. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Share Purchase<\/h3>\n\n\n\n<p>By\nacquiring the share of the target company by the acquirer, acquisition can be made.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Slump Sale<\/h3>\n\n\n\n<p>It&#8217;s a type of sale of business or undertaking whereby a vendor as going concern to an acquirer, without any specific value being assigned.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/online-gst-registration-for-service-tax-holder\/\">\nA Complete Overview on GST Registration for Service Tax Holder\n\n<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Different_categories_of_Merger\"><\/span>Different categories of Merger <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>There\nare different categories of Merger, which are as follows:-<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Horizontal Merger<\/h3>\n\n\n\n<p>This\nMerger type takes place when two same kinds of companies in direct competition\nand share the same market and product combine.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Vertical Merger<\/h3>\n\n\n\n<p>Vertical\nMerger is known to be between customer, and company or supplier, and company.\nThis means before the Merger, and there were a potential buyer and seller\nrelationship. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Multinational Merger<\/h3>\n\n\n\n<p>Generally, a merger between companies with different business areas has no typical relationship of anyway. Kinds of Multinational merger are \u2013 Product Extension Merger, Market extension Merger and etc.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Impact_of_GST_on_Merger_and_acquisition\"><\/span>Impact of GST on Merger and acquisition <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The impact of GST on Merger and acquisition is not very clear as it is a complex subject requiring deeper introspection. There is some clarity on how the GST tax is levied on the sale of the assets. The purchase of assets can be made either as an itemized sale or as a slump sale.<\/p>\n\n\n\n<p>GST\ntaxation is quite clear when it comes to the itemized sale, but how a slump\nsale will be treated is still not clear. An itemized sale would mean the sale\nof assets and liabilities where each item&#8217;s value is known along with the\namount of goodwill and liquid cash, etc.<\/p>\n\n\n\n<p>Under GST, this can be treated as a supply transaction and can be easily calculated. But the <strong>GST Act<\/strong> does not clearly say whether the transfer of a business in the case of slump sale would be taxed or not. As per experts, there will be no GST on Merger and Acquisition in case of slump sales.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Companies initiated mergers with their subsidiaries before\nthe implementation of GST on Merger and Acquisition.<\/h3>\n\n\n\n<p>Big\nmultinational companies in India to save tax and reduce overhead costs\nhurriedly merged with their subsidiaries before GST&#8217;s implantation. This was\ndone to avail excise duty incentives that would have become immaterial under\nGST.<\/p>\n\n\n\n<p>This\nmove lowered their multiple legal implications and helped to reduce compliance\ncosts. The impact and effect of taxes are of primary concern for companies\ngoing in for mergers and acquisitions.<\/p>\n\n\n\n<p><a href=\"https:\/\/corpbiz.io\/gst-registration\"><strong>Goods and services tax<\/strong><\/a> implications on the sale or transfer of securities under mergers and acquisitions Share acquisition of a business is one of the conventional methods of procurement. According to GST on Merger and Acquisition, part of company share is covered under securities. The term securities have explicitly been excluded from the definition of goods and services. Therefore, no GST will be levied on the sale of securities.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Registration_under_transfer_or_acquisition\"><\/span>Registration under transfer or acquisition<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p> Under section 22(3) of the <strong>GST Act<\/strong>, when a business is supported by a taxable person registration is transferred, the transferee or the successor would be liable to be registered with effect from such transfer or succession and will have to obtain a new registration with effect from the date of such removal or inheritance. The inputs and capital goods so transferred must be duly accounted for by the transferee in his books of account. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Inter-Company transactions during the intervening GST on\nMerger and acquisition<\/h3>\n\n\n\n<p>The\nintervening period refers to the period between the appointed date (date from\nwhich business of the transferor vests with the transferee) and the effective\ndate (when the Court order is submitted to the Registrar of Companies. In the\ncase of mergers and acquisitions with retrospective effect, two companies\nshould be considered as a single entity from the appointed date. Thus, any\ntransaction of goods and services between the selected time and effective date\nshould be regarded as a transaction with oneself.<\/p>\n\n\n\n<p>According\nto Section 87 of the GST law, two or more companies are treated as distinct\ncompanies up to the date of the court order, implying that the transactions\nbetween them during the intervening period are liable to GST&#8217;s impact on Merger\nand acquisition.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In case of a merger of two or more companies, the transferee shall be liable to be registered, with effect from the date on which the companies&#8217; registrar issues a certificate of incorporation. Further, Rule 41of the GST Act says Form ITC -02 is required to be submitted by the transferor furnishing complete details of the sale, merger, acquisition, etc. During the process of GST on Merger and purchase, both transferor and transferee need to determine the provision of transfer of liabilities. <a href=\"https:\/\/corpbiz.io\/\"><strong>CorpBiz<\/strong><\/a> shall be happy to serve you well for any issues regarding Merger and Acquisition along with Complete GST Compliances. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/eligibility-criteria-for-gst-registration-india\/\">\nA Complete Guide on Eligibility Criteria for GST Registration\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Indian economic reforms have created a lot of scope for mergers and acquisitions both in the domestic and global markets. In today&#8217;s commercial scenario, M&amp;A has gained considerable significance as companies compete with each other on the national and international levels. Companies opt for mergers to restructure their organization and expand their market presence; [&hellip;]<\/p>\n","protected":false},"author":18,"featured_media":13584,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[16],"tags":[795],"acf":{"service_id":"68"},"authorName":"Sakshi Srivastava","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/IMG-20180130-WA0007.jpg","authorDescription":"Sakshi has pursued B.B.A.LL.B.(IPR Hons.). She is an avid reader and is keen to gather and share her knowledge on the subjects relating to IPR, Company Law and GST. Priorly she has worked as a legal researcher and vide her articles she aims at improving the core knowledge of the subjects to the masses.","postViews":10659,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/13579"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=13579"}],"version-history":[{"count":15,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/13579\/revisions"}],"predecessor-version":[{"id":65111,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/13579\/revisions\/65111"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/13584"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=13579"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=13579"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=13579"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}