OPINION: The link between corporate name changes and tax
Tanzania, as is likely to be the case in many other countries, has witnessed several changes of names by a number of companies and institutions.
These range from hotels, telecommunication companies, mining companies, transport companies and even universities.
These names changes have raised a number of debates. Some of the debates do associate the name changes – especially by multinational corporations - with tax schemes in forms of tax avoidance and tax evasion.
Renaming moves are associated with tax schemes in the shapes of tax avoidance and tax evasion. This article makes a discussion on whether the changes of corporate names are among tax schemes aiming at tax avoidance and tax evasion in Tanzania as part of the author’s contribution to the 2019 tax payers education week
Tax payers week Tax payers week is an annual event in which the Tanzania Revenue Authority (TRA) emphasizes on a number of fiscal issues that may lead to increasing tax revenues.
For a country like Tanzania where total tax revenues are far below the national budget, the role of mobilization and sensitization for increased tax revenues cannot be overemphasized. It is important to provide tax education on a number of tax matters such as those covered in this article. Tax avoidance Tax avoidance is a tax scheme that attempts to do everything possible within the law to reduce one’s tax bill. It involves carefull tax planning including making use of existing laws in favour of a tax payer so as to pay as little tax as possible but within the provisions of the law.
It may include playing tax acrobatics and manouvours with tax and other experts with ‘good intension’ of reducing individuals’ or corporate tax liabilities legally.
This is normally done as among profit maximization strategies by corporate chiefs. For captains and titans of the industry, profit is the bottom line.
Since tax after profit reduces profit and therefore disposable income, profit-maximizing agents who are homoeconomicus (economic beings by nature) will struggle to reduce tax liabilities.
Tax evasion Tax evasion is about paying less tax than one is legally obliged to. Tax evasion involves various efforts by companies and individuals who are tax payers to evade paying tax or taxes they are supposed to pay.
These efforts are done by various illegal means. They may include but not be limited to not declaring all or part of taxable incomes to the tax man. It may also take the form of falsely claiming tax reliefs that one is not entitled to. Contrary to tax avoidance therefore, tax evasion is illegal.
Corporate name changes Corporates change of names is a normal thing. This has been seen in Tanzania and elsewhere. In the early days of telecommunication industry in Tanzania the name Mobitel was arguably a household name. Today’s CRDB Bank Plc used to be Cooperative and Rural Development Bank while Iringa University used to be Tumaini University College for example.
Corporate bodies change names for various reasons. These include mergers and aquisitions (M&As), take overs, branding and rebranding or any other strategic reason such as repositioning in the market for various reasons. Of interest in this article is corporate name change in relation to tax schemes such as tax avoidance and tax evasion.
Name changes and tax Corporates’ tax status is not changed by a mere change of corporate name. A company’s tax liabilities are unaffected by just a change in its name.
A change in name does not change a company as a going concern because there is no money that has changed hands. A going concern will be taxed accordingly irrespective of name change. What would have tax implication is change of ownership not change of name.
Change of ownership attracts capital gain tax because there is money changing hands. Capital gain tax is a tax levied on surplus acrued from the sale of assets both personal and corporate for more than was originally paid for.
Tax incentives A mere change of name or even change of ownership does not affect a company’s tax incentives benefits. This is because tax incentives revolve around capital goods. They are granted on elligible investors’ capital goods.
If a company changes hands while in operation, it is a going concern that is not likely to pass the fiscal incentives elligibility test.
