Earlier this month, the Supreme Court handed down a significant judgment in Director-General, Mauritius Revenue Authority v TOPFM Ltd, providing authoritative guidance on whether tax losses can be carried forward following an amalgamation.
The matter concerned the amalgamation of TOPFM Ltd and Skywave Ltd in September 2018.
At the time of amalgamation, Skywave had accumulated unrelieved tax losses of approximately MUR 17.4 million. TOPFM Ltd sought to carry these losses forward against its post-amalgamation taxable income. The Mauritius Revenue Authority (MRA) refused to allow the set-off, contending that the Income Tax Act 1995 (ITA) does not permit the transfer of such losses other than in the limited circumstances prescribed by section 59A (which specifically deals with transfer of loss on takeover or merger). The Assessment Review Committee (ARC) had initially ruled in favour of TOPFM Ltd. On appeal, however, the Supreme Court reversed that decision and upheld the MRA’s position and awarded costs against TOPFM Ltd.
The Court held that:
- Section 59 of the ITA applies strictly to the losses of a company in respect of its own income and is the only law governing the transfer of tax losses in cases of mergers or takeovers, which is subject to stringent conditions (eg for manufacturers or where ministerial approval has been obtained on public-interest grounds).
- Unclaimed tax losses cannot be characterised as ‘property, rights, powers or privileges’ that automatically vest in an amalgamated entity under the Companies Act.
Key takeaways include the facts that tax losses do not automatically transfer on amalgamation; company law continuity on amalgamation does not override tax legislation; the transfer of loss on takeover or merger is limited to the cases specified in section 59A of the ITA; and restructuring strategies must factor in the potential loss of tax attributes.
