Lawyers | ||
|---|---|---|
|
Government of India Enhances Scope of Target Exemption for Mergers and Amalgamations
On March 29, 2017, the Government of India published a notification enhancing the scope of the target exemption under the relevant regulations. This revision expands the exemption to include transactions structured as mergers or amalgamations. While the target exemption threshold remains unchanged (as revised in 2016), several important modifications have been made to the existing provisions.
Key Changes Under the Revised Target Exemption:
-
Expansion to Mergers and Amalgamations
The revised target exemption now extends to mergers and amalgamations, allowing such transactions to be eligible for the same benefits previously applied to other forms of acquisitions. -
Consideration of Business, Division, or Portion of Enterprise
For transactions involving the acquisition or merger of only a business, division, or a portion of an enterprise, the assets and turnover values of the specific business or division will need to be considered. This ensures that the exemption is appropriately applied based on the specific part of the business being acquired. -
Applicability Period
The new notification applies for a period of five years, expiring on March 28, 2022. Notably, it does not apply to transactions entered into prior to March 29, 2017. Transactions occurring before this date will continue to be governed by the earlier provisions of the target exemption. -
Asset and Turnover Value Determination
To determine whether the jurisdictional thresholds are met or if the target exemption applies, the asset or turnover value of the specific business or division being acquired or merged is to be considered. This value should be determined based on audited financial statements for the immediately preceding financial year. -
Inclusion of Intellectual Property Rights
The revised target exemption clarifies that in computing the value of assets or turnover, the value of Intellectual Property Rights (IPR), if any, must be included. This ensures that intangible assets such as patents, trademarks, or copyrights are accounted for in the calculation.
The March 2017 notification enhances the flexibility of the target exemption provisions by expanding its scope to include mergers and amalgamations, and by providing greater clarity on how the asset and turnover values should be computed. This adjustment is significant for companies involved in mergers or acquisitions, as it helps streamline the determination of whether the exemption applies and ensures that intellectual property is properly valued in the process.
The revised target exemption will remain in effect until March 28, 2022, providing clarity and a stable regulatory environment for businesses involved in restructuring activities.
