Acquisitions (from the buyer’s perspective)Tax treatment of different acquisitions
What are the differences in tax treatment between an acquisition of stock in a company and the acquisition of business assets and liabilities?
The difference in tax treatment between the acquisition of stock in a company and the acquisition of business assets and liabilities concerns the registration fees regime applicable to these operations.
The acquisition of shares in a Moroccan company has been exempted from registration fees since 1 January 2018 (before the Financial Law for the budgetary year 2018, it was subject to registration fees of 4 per cent).
If the acquisition of business assets and liabilities are part of a transfer of a business, this transaction will be subject to registration fees of 6 per cent, while the inventory acquired in connection with the transfer of a business is subject to a registration fee of 1 per cent.
Business assets and liabilities are not subject to VAT, except for the acquisition of tangible assets, which is subject to the VAT general rate of 20 per cent).Step-up in basis
In what circumstances does a purchaser get a step-up in basis in the business assets of the target company? Can goodwill and other intangibles be depreciated for tax purposes in the event of the purchase of those assets, and the purchase of stock in a company owning those assets?
Following the provision of the General Code for Accounting Standards, a step-up basis in business assets is mandatory at the end of each financial year.
Intangible assets may be impaired through a provision in the context of which the depreciation of their value can be justified regardless of the event that justified the depreciation. However, this provision is not deductible in Morocco.Domicile of acquisition company
Is it preferable for an acquisition to be executed by an acquisition company established in or out of your jurisdiction?
The buyer’s location has no importance as the tax consequences in terms of registration fees and VAT will be the same whatever the place of residence of the acquisition company.
However, with a view to avoiding later capital gains, it may be beneficial to set up a holding company that will acquire the Moroccan target in a country exempting capital gains on shares (eg, Luxembourg).
Indeed, it could be beneficial to locate the holding company in a state in which the tax law provides some exemptions applicable to the capital gains related to the sale of shares.Company mergers and share exchanges
Are company mergers or share exchanges common forms of acquisition?
The sale of shares is an option that is frequently used because it is simpler and quicker in its realisation. Moreover, for the entity that acquires it, it is more beneficial for tax purposes because it is exempt from registration fees or subject to registration fees of 6 per cent (if the company is constituted with a majority of real-estate assets) with no VAT applied.
A transfer of business is subject to registration duties at the rate of 6 per cent and VAT for the tangible assets (goods), and triggers some operations, such as the transfer of commercial contracts to the purchaser.
A merger is used in the case of an intra-group transaction. However, this involves a very significant tax control risk of the company being absorbed and therefore it is not a privileged option.Tax benefits in issuing stock
Is there a tax benefit to the acquirer in issuing stock as consideration rather than cash?
To the extent that an exchange of shares is assimilated to a sale of shares in Moroccan law, there is no specific advantage in issuing stock for tax benefits.Transaction taxes
Are documentary taxes payable on the acquisition of stock or business assets and, if so, what are the rates and who is accountable? Are any other transaction taxes payable?
Where there is a disposal of fixed assets without any transfer of a business (ie, stocks), no stamp duties apply. However, Moroccan VAT is applicable.
Where the acquisition of business assets and liabilities are part of a transfer of a business, this transaction will be subject to registration fees of 6 per cent, while the inventory acquired in connection with the transfer of a business is subject to a registration fee of 1 per cent.
The acquirer is accountable for the payment of the registration fees. If VAT is applicable, it is also paid by the acquirer, but the seller is required to remit the VAT to the Moroccan treasury.Net operating losses, other tax attributes and insolvency proceedings
Are net operating losses, tax credits or other types of deferred tax asset subject to any limitations after a change of control of the target or in any other circumstances? If not, are there techniques for preserving them? Are acquisitions or reorganisations of bankrupt or insolvent companies subject to any special rules or tax regimes?
Tax losses may be carried forward for a period of four years from the end of the loss-making accounting period. However, losses may not be carried back.
According to article 232(I) of the Moroccan General Tax Code (GTC), the statute of limitation is four years following the end of the financial year concerned.
However, in application of article 232(III) of the GTC, whether the Moroccan entity has registered some loss carry-forward that has been deducted from a tax year subject to tax audit, the Moroccan tax administration can extend its tax audit to the last four closed years. This extension of the statute of limitation could also be applicable by the Moroccan tax administration in cases of VAT credits.
A change of shareholder (ie, takeover) does not affect the possibility of deferring the deficits.
In mergers, article 162-II, H of the GTC provides that the accumulated deficits shown in the tax return for the last financial year preceding the merger cannot be carried forward for the following financial years.
No special tax regime is applicable to acquisitions or reorganisations of bankrupt or insolvent companies.Interest relief
Does an acquisition company get interest relief for borrowings to acquire the target? Are there restrictions on deductibility generally or where the lender is foreign, a related party, or both? In particular, are there capitalisation rules that prevent the pushdown of excessive debt?
Interest on borrowings is deductible, provided that the debt is incurred for the needs and in the interest of the company. Thin capitalisation rules apply to reduce the deduction available where the taxpayer is a foreign entity operating in Morocco, a foreign-controlled Moroccan entity or a Moroccan resident with foreign business investments. In each of these cases, the tax deduction for interest may be reduced if the taxpayer’s debt exceeds the levels permitted under the thin capitalisation provisions.
If the loan is granted by a foreign shareholder, the tax deductibility of interest paid by the company should be granted within the following limits (thin capitalisation rules):
- the amount of the shareholder loan does not exceed the amount of the share equity capital (ratio 1:1); and
- the interest rate does not exceed the rate annually fixed by the Ministry of Finance during a tax year (2.19 per cent for 2019).
What forms of protection are generally sought for stock and business asset acquisitions? How are they documented? How are any payments made following a claim under a warranty or indemnity treated from a tax perspective? Are they subject to withholding taxes or taxable in the hands of the recipient? Is tax indemnity insurance common in your jurisdiction?
In the case of a transfer of business, shares or stocks, the preferred form of guarantee is the guarantee of liabilities.
There is no specific documentation required, although we recommend that the selling contract specifies in maximum detail the assets sold and the conditions for the buyer to assert his or her rights.
The guarantee of liabilities is a specific clause within the contract of assignment. The payment of an indemnity under such a guarantee is considered for tax purposes as income for the purchaser.
In this context, this indemnity is subject to corporate income tax under Moroccan tax regulations.