In this article the term «transfer of an enterprise» will be used in the meaning of the Law of Obligations (Võlaõigusseadus, hereinafter – VÕS), according to which:
The transferor may, by contract with the purchaser, undertake to transfer the business to the purchaser. The enterprise may pass to the purchaser also on the basis of the law. (p. 1 § 180 VÕS)
The enterprise includes things, rights and duties related to the conduct of the business of the enterprise and its servicing, including the contract related to the enterprise. (p. 2 § 180 VÕS)
Therefore, from the quoted provisions of the law it should be quite clear that the term «enterprise» refers to certain business activities for which things and other assets are used (which are essentially rights in one way or another, whatever terms are used to refer to them in legal acts governing accounting and the payment of taxes), contracts are concluded, resulting in persons Business owners (let us call them entrepreneurs) have rights and obligations.
Taxation aspects
According to article 35 of the Tax Act, if the law provides for the succession of rights and obligations from one person to another, then all monetary and non-monetary claims and obligations (obligations) are transferred to the successor established in the Tax Act, in the specific tax laws and in the laws specified in Article 3, Part 4 of the Tax Act (including the Savings Pension Act and the Unemployment Insurance Act)which are not intrinsically linked to the person. There is no obligation to pay fines (more precisely, not fines, but sunniraha, that is, the sums of money imposed for the purpose of compulsion to fulfill an obligation).
As can be seen from article 182VÕS, part 2, not only all assets (things and rights) of the transferred enterprise are transferred to the purchaser of the enterprise, but also all duties related to the transferred enterprise, that is, the purchaser of the enterprise is the successor of that entrepreneur, from which the enterprise is received – of course, it is the transferee of the transferable enterprise only. If this is the case, he is the legal beneficiary of the tax rights and obligations of the enterprise.
Simply put, if the entrepreneur who transferred the enterprise has not paid, for example, some tax related to the transferred enterprise, the new owner of the company will have to pay the tax.
It is this tax succession that explains why the Turnover Tax Act does not apply to the transfer of a turnover business (cf. paragraph 1.2. 4 of the Act). No, as the transferee of the business, is given all rights and duties related to the turnover tax of the transferred business. The extent to which the taxpayer is literate and conscientious is the entrepreneur from whom the enterprise is derived.
Accounting aspects
The accounting aspects of the transfer of an enterprise are essentially clear from the purchaser’s point of view, since the transfer of an enterprise is a consolidation of business within the meaning of the Accounting Service Instruction RTJ 11 «Business associations, as well as reflection of subsidiaries and associated companies». Indeed, according to RTJ 11, clause 5, business association (of course RTJ 11) does not occur only when one person acquires control of another person by purchasing or sharing shares, but also when control over a business is created by the acquisition of assets and liabilities related to that business.
As follows from RTJ 11, if the purchaser, after entering into the contract referred to in article 180 VÕS, receives the enterprise from a person not associated with it (with the purchaser), then the business association should be reflected by the acquisition method (or sometimes referred to as the purchase method) described in paragraphs 19-49 of RTJ 11.
If, however, both persons who have concluded the contract referred to in Article 180 VÕS (i.e., the transferor of the enterprise and the purchaser of the enterprise) are under common control, then the consolidation of the business should be reflected using the adjusted acquisition method, described in paragraphs 50-55 of RTJ 11.
Nor is it conceptually difficult to record a transaction in the accounting of a person who transfers an enterprise under a contract established in article 180 VÕS. When an enterprise is sold, it is necessary to record in the accounting the financial result obtained from the sale of the enterprise (profit or loss), which is calculated as the difference between the income from the sale of the enterprise and the value of the transferred net assets (i.e., transferred assets less transferred liabilities).
In the profit statement, the financial result obtained from the sale of the enterprise is reflected in other operating income (muud äritulud) if a profit is made, or other operating expenses (muud ärikulud) if a loss is incurred, since, first, the sale of an enterprise is in no way a permanent activity, therefore, the income from the sale of the enterprise is not to be reflected in the income from sales (mügitulu) and, second, the sale of the enterprise for the person who sells the enterprise, hence, a business is not a financial gain. And if so, in the profit statement there is only one place – the article «Other operating income» (Muud äritulud), or to reflect the loss – the article «Other operating expenses» (Muud ärikulud).
The most common nuances involved in the sale of a company are those to be taken into account in the course of both accounting and tax returns.
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