Mergers and acquisitions: filings, basis periods and the tax result of restructuring under s. 189

Two beverage companies in the same town decide to combine. One will survive, one will disappear, and each owns trucks, bottling lines and a pile of unused tax losses. Before anyone signs, three questions arise. Do the assets change hands at market value, so that a gain is taxed? Do the losses survive? Does the surviving business count as a new one for tax?

The Nigeria Tax Act (NTA) 2025 answers all three, and the answer depends on how the deal is structured.

This topic covers the meaning of mergers and acquisitions, the regulators, the filings with the Corporate Affairs Commission (CAC), the Securities and Exchange Commission (SEC) and the tax authority, basis periods, the tax result of each type of restructuring under section 189 NTA 2025, the rules for related companies, the effect on shareholders, and some well-known deals. The previous topic covered sustainable development. The next covers tax practice management.

Key terms in plain English

Syllabus check

This topic is in syllabus area D (current and emerging issues, 10% of marks). It covers:

• the concept of mergers and acquisitions and their regulation;
• statutory filings and the basis periods for assessment;
• the tax result of restructuring, the concessions for related entities and their conditions.

CAMA 2020 and mergers

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.

The rules in more depth

Concepts

A merger or acquisition is a business combination in which the assets, liabilities and businesses of two or more companies vest in one company, which may or may not be one of the original companies.

Types: a horizontal merger of companies in the same business (the old Chartered Bank and IBTC became Stanbic IBTC); a vertical merger of a business with its supplier (a soft drink company and a bottle maker); and an acquisition, where one company buys all or most of the equity of another. If A buys more than 50% of B and C, they become subsidiaries and A the holding company.

Regulators

• Federal Competition and Consumer Protection Commission (FCCPC): the main regulator of mergers under the Federal Competition and Consumer Protection Act 2018.
• SEC: mergers that involve public companies, under the Investments and Securities Act 2025; it supervises fairness and investor protection.
• CAC: registers the companies and records changes.
• Central Bank of Nigeria and National Insurance Commission: banks and insurers.
• Relevant tax authority (RTA): the NRS, the State Internal Revenue Service and the FCT Internal Revenue Service.

Filings

CAC. Annual returns; notice of change of directors; notice of change of shareholding, which nearly every merger or acquisition causes. SEC. Listed companies file annual and quarterly reports and must disclose material events such as a merger or acquisition.

Tax authority. A taxable person must tell the authority within 30 days of a change in its particulars under the Nigeria Tax Administration Act (NTAA) 2025: a sale, liquidation, acquisition, takeover or merger, with all relevant details and the full details of the new owners. Section 189(4) NTA 2025 adds that the authority must be told of any restructuring of a trade or business before the arrangement starts.

Direction and clearance should be obtained on any tax due before the combination closes.

Basis periods

A merger does not start a new business or end an old one (s. 189(1)(a)). The commencement rule does not apply to the survivor and the cessation rule does not apply to the business that ceased, so the survivor is assessed on the preceding year basis on the profit of its accounting period.

If the survivor is a new company, its first basis period runs from the date it starts business in Nigeria to the end of its first accounting period (s. 22 NTA).

Where a sale or transfer ends a trade (s. 189(1)(b)), the cessation rule applies: the basis period runs from the start of the accounting period to the date of cessation, and tax is payable within six months of cessation (s. 24 NTA).

Tax result of each structure (s. 189 NTA 2025)

Upstream petroleum. Where a restructuring forms a new company and ends the old business, the acquirer’s accounting period starts on the date of the transfer (or a date in that month elected with the NRS’s approval) and ends on 31 December. Any gap is treated as part of the new company’s period.

Economic development incentive (s. 169(6)). If a company with the incentive acquires another with it, both lose the status when the survivor’s certificate expires. If it takes over a company without the incentive, the acquired business must apply for the certificate. If a company without it buys one with it, the status does not pass unless the buyer applies and is approved.

If two companies with it merge, the status of both ends on the merger date, the new company may apply. Its certificate cannot run past the later expiry date of the merging companies.

Related companies

Where related entities restructure by sale or transfer, the commencement and cessation rules do not apply; assets are treated as sold at the residue of qualifying expenditure the day after; and no VAT or chargeable gain arises. The conditions, carried over from the Finance Act 2019, are that the entities were related for at least one year before the restructuring and that no asset is disposed of for one year afterwards. A breach withdraws the relief.

Shareholders

In a share-for-share exchange, the transaction is exempt from tax on the shareholder. Where shareholders are paid wholly or partly in cash, the gain is a chargeable gain, taxed in total profit for a company and as income for an individual, unless the exemption in s. 34 NTA 2025 applies: disposal proceeds below ₦150 million in aggregate and chargeable gains not above ₦10 million in any 12 consecutive months.

Costs of the deal

Costs of a merger or arrangement are capital and are not allowed. Stamp duty, registration fees (SEC, stock exchange, CBN, land authorities) and professional fees that bear VAT and withholding tax are capitalised. Stamp duty is paid on an increase in share capital.

Some deals

Mergers have been regulated in Nigeria since the SEC began operations in 1982. The main laws are CAMA 2020, the Investments and Securities Act 2025 and sector laws such as the Banks and Other Financial Institutions Act 2020.

Worked examples

1. No gain arises on the ₦60m difference between value and residue, because the assets are not chargeable assets on transfer.
2. Alpha takes the assets at the residue of ₦80m and claims allowances over their remaining tax life.
3. The unused allowances of ₦10m and the ₦25m of losses pass to Alpha, because they were incurred by the merged business.
4. No VAT is charged on the transfer, and no commencement or cessation rule applies.

1. Cessation rules apply to Old Ltd; its final basis period ends on the cessation date.
2. Its gain is 300 − 200 = ₦100m, included in total profit and taxed at up to 30%.
3. The buyer claims allowances on the price paid, ₦300m. Old Ltd’s losses, unused allowances and tax deducted at source do not pass to the buyer.

1. The price does not exceed residue plus unused allowance (40 + 5 = ₦45m), so s.
   189(1)(c) applies.
2. No chargeable gain arises and no VAT is charged.
3. The buyer claims the allowances over the remaining tax life and takes the ₦5m of unused allowance. Gamma Ltd claims none of it.

1. Shareholder 1: a share-for-share exchange, so no tax arises.
2. Shareholder 2: proceeds are below ₦150m and the gain is not above ₦10m, so exempt under s. 34.
3. Shareholder 3: proceeds exceed ₦150m and the gain exceeds ₦10m, so the ₦12m gain is taxable.

How to score full marks

• Identify the structure first: merger, sale with cessation, or asset sale without cessation.
• Give each limb of s. 189(1) with the effect on gain, allowances, losses and VAT.
• State the filing steps: CAC, SEC, FCCPC and the tax authority, 30 days and prior notice.
• Note the one-year conditions for related companies.
• Treat shareholders separately from the companies.

Common mistakes in the exam

• Taxing a gain on assets transferred in a merger.
• Letting the buyer inherit losses after a sale with cessation.
• Charging VAT on transfers in a restructuring.
• Forgetting that the tax authority must be notified before the arrangement starts.
• Treating a share-for-share exchange as taxable.
• Allowing the cost of the merger as a deduction.

Quick revision

• s. 189(1)(a): merger, residue values, losses and allowances pass, no gain, no VAT.
• s. 189(1)(b): sale with cessation, price values, nothing passes except the assets.
• s. 189(1)(c): asset sale at or below residue plus unused allowance.
• 30 days after a change in particulars; prior notice of restructuring (s. 189(4)).
• Related companies: related one year before, no disposal for one year after.
• CAMA 2020: ss. 119, 377(1), 378, 710, 711, 715 to 717.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

Recent ICAN papers are written, although older papers such as May 2014 included multiple-choice questions. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

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