Lahore, Pakistan – The Federal Board of Revenue (FBR) has faced a setback in its attempt to impose additional capital gains tax on a public limited company that merged with its subsidiary.
The FBR argued that the company’s assets received in exchange for shares constituted capital gains. However, the taxpayer maintained that the merger was a corporate reconstruction process and did not involve any financial transactions that would trigger capital gains tax.
The Commissioner Appeals agreed with the taxpayer’s argument, stating that the merger did not involve any sale, disposition, exchange, or relinquishment of rights that would give rise to capital gains. The Commissioner noted that the net assets of the merging companies remained unchanged, and no cash payment was involved.
Furthermore, the taxpayer argued that capital gains tax would only be applicable to the transferor company (the subsidiary company), which had ceased to exist after the merger. Business Recorder
The relevant forums sided with the taxpayer and overturned the FBR’s additional tax demand. The case highlights the complexities involved in determining capital gains tax liability in merger and acquisition transactions.
