Estonia: Date on which taxable payment from equity determined in cross-border merger of companies

Supreme Court decision

Date on which taxable payment from equity determined in cross-border merger of companies

The Supreme Court held that, following a cross-border merger of companies, the date on which payments from equity subject to tax must be calculated and a balance sheet drawn up is the date the merged company is deleted from the commercial register, and not the merger balance sheet date.


An Estonian parent company merged with its subsidiary, a company established in Lithuania. In the merger agreement, the merger balance sheet date was set at 1 October 2018 and the parent company was deleted from the commercial register in Estonia on 21 March 2019.

Upon the merger, the parent company made a payment from equity, on which the tax authority issued an assessment notice obliging the subsidiary, as the acquiring company, to pay income tax. The tax authority determined that a payment from equity is made as at the merger balance sheet date and not as at the date of deleting from the register. In addition, the tax authority determined that the final balance sheet must be prepared as at the day preceding the merger balance sheet date.

Although the lower courts agreed with the tax authority, the Supreme Court held that proceeding from the merger balance sheet is not consistent with the content and purpose of subsection 50 (22) of the Income Tax Act, which specifies that the time for fixing the amount of taxable equity is a taxable event (i.e., the deletion of a person from the register).

Read an April 2023 report prepared by the KPMG member firm in Estonia 



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