Hi, all, Nice meeting you. This is my first question in this forum. This is the idea I read from textbook, but not understand it too well. If a company to be acquired has accumulated tax losses, a stock purchase benefit the shareholders. Under US rules, the use of targeet’s tax losses is allowable for stock purchase, but not for asset purchase. Does it mean that in stock purchase, if a shareholder need to pay capital gain tax, it can make use of the company tax loss to reduce the capital gain tax he need to pay? Thanks for comment
No. Not for personal tax. It is for corporate tax. If company A is highly profitable, thus pays a lot of income tax, buying company B with long accumulated tax loss credit will allow A to reduce its current income tax, thus it is worth a lot for A than for B, who may not have hope to use this credit for a long time. Beware that some tax authorities are aware of this loophole and may not allow this kind of tax deduction, if the merger is clearly for tax purposes (e.g., between 2 completely different lines of business with no other business reasons to merge).
Thank you, the explanation is very clear.