In Mozambique, mergers and demergers continue to gain ground as tools for corporate reorganization. It is therefore important to understand the challenges and conditions for fiscal neutrality to be recognized, in order to avoid risks arising from incorrect structuring of such operations.
Corporate restructuring, whether through mergers, demergers, or asset contributions, has been a key tool for optimizing corporate structures in various countries. Mozambique is no exception, as evidenced by several such reorganizations in recent years, including within the State-Owned Enterprise sector. However, the assumption that these operations are automatically fiscally neutral does not necessarily correspond to practical reality, as fiscal neutrality requires compliance with specific legal, tax, and accounting criteria, which are relatively detailed in the Commercial Code and the General Accounting Plan (PGC-NIRF).
The fundamental requirement underpinning these operations is that they are driven by valid economic reasons, such as activity rationalization, efficiency improvements, or strategic expansion, otherwise they may be challenged.
It is therefore necessary to analyze the main challenges associated with fiscal neutrality in restructurings, identify common risks, and suggest best practices for companies, advisors, and policymakers. A multidisciplinary approach demonstrates that only with technical rigor and an integrated vision can a restructuring become a true value-creating opportunity.
In a business environment of constant transformation, restructuring through mergers, demergers, and asset contributions represents a legitimate and necessary path for strategic adaptation. One of the perceived advantages of such operations is fiscal, which often leads to the belief that they automatically enjoy fiscal neutrality. In reality, however, for neutrality to be recognized by Mozambican tax authorities, specific legal requirements must be met and the operation properly documented. The Mozambican Commercial Code provides the legal framework for these operations, framing them as modes of corporate reorganization that entail the succession of rights and obligations. It systematically allows mergers through the incorporation of one or more companies into another existing company, the creation of a new entity from the combination of distinct assets, or absorption among companies within the same group. The Code establishes essential formalities, from drafting merger projects to creditor protection and publication of acts, ensuring transparency, legal continuity, and economic legitimacy. However, it does not regulate the fiscal aspect, leaving this to the Corporate Income Tax Code (IRPC) and its regulations.
The fundamental requirement, which forms the foundation of these operations, is that they are supported by valid economic reasons, such as the rationalization of activities, efficiency improvements, or strategic expansion, otherwise they may be challenged.
In accounting terms, the General Accounting Plan – International Financial Reporting Standards (PGC-NIRF), through NCRF 21, provides the technical framework for recognition and measurement of business combinations, conceptually aligned with IFRS 3. This standard requires treating the transaction as a business combination, in which one entity gains control over one or more economic activities, necessitating identification of the acquirer, measurement of acquired assets and assumed liabilities at fair value, and recognition of goodwill or bargain purchase gains. The PGC-NIRF emphasizes that accounting must reflect the economic substance of the operation regardless of the legal form adopted, and any significant structural change must be supported by robust and justifiable documentation. While essential for consistency and integrity of financial information, this framework alone does not confer fiscal neutrality; the specific tax regime must be applied to determine whether the operation is taxable.
It is precisely the IRPC Regulation that clarifies fiscal neutrality in restructurings. Articles 13 and following of this Regulation outline the conditions under which mergers, demergers, and asset contributions can be considered fiscally neutral, highlighting:
- The requirement that the company holds full ownership of the merged or demerged entity, which may necessitate a prior corporate operation to meet this condition;
- The obligation to maintain continuity of the book values of transferred assets and liabilities, ensuring no revaluation triggers immediate gains;
- The necessity to demonstrate valid economic reasons, such as group structure rationalization, efficiency improvement, or competitive strengthening; and
- The prohibition of operations motivated primarily by obtaining tax benefits.
One particular condition raises technical and conceptual questions: the requirement that the beneficiary company holds or will hold a majority stake in the merged or demerged entity.
Although designed to ensure economic continuity and prevent actual divestment, this requirement introduces unique complexity in restructuring design. The rationale is straightforward: when the company receiving the assets gains direct or indirect control over the transferring entity, no real divestment occurs—only an internal reorganization within the group. This allows for potential avoidance of immediate capital gains taxation, preserving fiscal neutrality. However, in practice, meeting this requirement may necessitate a prior corporate transaction, typically the acquisition of full share capital of the entity to be absorbed, so that control is established before the merger, demerger, or asset contribution. This seemingly technical detail creates a paradox: proving pre-existing control to justify fiscal neutrality may itself involve a taxable transaction.
Thus, fiscal neutrality is not presumed; it must be demonstrated. The taxpayer bears the burden of showing not only legal compliance but also economic coherence across the transaction stages.
These conditions strike a balance between the principle of neutrality and abuse prevention. Mozambican law does not grant automatic neutrality: the taxpayer must demonstrate economic substance and document the strategic rationale. The Tax Authority retains discretion to deny neutrality if the operation is merely instrumental or lacks genuine business purpose.
The interplay between the Commercial Code, PGC-NIRF, and IRPC reveals the multidimensional nature of fiscal neutrality. The first defines the legal framework, the second translates it into accounting terms, and the third determines the actual tax impact. A formally legitimate and correctly accounted operation may still fail to achieve fiscal neutrality if it does not meet the substance requirements under tax law.
These conditions establish a balance between the principle of neutrality and the prevention of abuse. Mozambican legislation does not grant automatic neutrality: it requires the taxpayer to demonstrate the economic substance and document the strategic rationale of the restructuring. The Tax Authority therefore has the discretion to disregard neutrality if the operation is merely instrumental or if there is a lack of genuine business purpose.
In a country where corporate reorganizations are increasingly relevant, including in the public sector, understanding this interdependence is essential to avoid future contingencies. Experience shows that lack of integrated technical analysis can turn a value-creating restructuring into a significant fiscal risk. True neutrality is demonstrated, resulting from well-documented structure, genuine business motives, and transparent accounting capable of withstanding regulatory scrutiny over time.
Finally, given the dynamism of today’s business environment, legislative reform may be necessary. The current tax regime, in effect since the introduction of the Income Tax Code in 2002, shows signs of misalignment with the realities of modern corporate concentration operations. Limiting fiscal neutrality only to situations in which the beneficiary company holds full share capital of the absorbed entity no longer aligns with the complexity of contemporary corporate structures. Just as rules allowing the transfer of tax losses in business combinations were updated, it is time to rethink and modernize tax regulations so that they facilitate, rather than hinder, value creation.
