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Short title.
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1. This Law may be cited as the Foreign Companies (Special Provisions) Law, No. 9 of 1975.
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Application of this Law.
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2.
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(1) Where in consequence of the operation of the Companies (Special Provisions) Law, No. 19 of 1974, any undertaking carried on in Sri Lanka by any company registered or incorporated outside Sri Lanka (hereinafter in this Law referred to as the ” foreign company”) and the assets and liabilities in Sri Lanka of the foreign company in respect of that undertaking are transferred at their book value on or before the relevant date to any Sri Lanka company, and where the aggregate of –
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(a) the nominal value of the shares in the Sri Lanka company allotted, in consequence of the transfer, to the foreign company or to the foreign company and to not more than nine nominees of the foreign company each such nominee being a person holding not more than one share in trust for the foreign company; and
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(b) any capital reserve created in the Sri Lanka company in consequence of the transfer,
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is not less than the excess of the book value of such assets over the book value of such liabilities, the provisions of this Law shall apply in respect of
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(i) the foreign company and the Sri Lanka company,
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(ii) the shares allotted at the first allotment of shares made, by the Sri Lanka company to the foreign company and to the aforesaid nominees of the foreign company, in consideration of the transfer to the Sri Lanka company of the assets and liabilities of the foreign company, and
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(iii) the assets and liabilities transferred to the Sri Lanka company.
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(2) For the purposes of subsection (1)-
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” book value “-
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(a) with reference to any assets of a foreign company consisting of any one or more of the following, namely, goodwill, land, buildings, plant, machinery, fixtures, equipment, shares, debentures and securities and transferred to a Sri Lanka company-
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(i) where the value of such assets is, in the opinion of the Commissioner-General of Inland Revenue, ascertainable from the balance sheet of the company for the last day of the accounting year of the company ending on any date in the calendar year 1973, means the value of those assets as ascertained from that balance sheet-
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(a) after making any adjustments in respect of actual additions to or sales of, or in respect of allowances for the depreciation or loss of, such assets occurring after the date of such balance sheet and before the transfer of those assets to the Sri Lanka company, and
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(b) after excluding such part of the value of those assets as are attributable to their revaluation unless the Commissioner-General of Inland Revenue has approved the inclusion of such part,
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(ii) where the value of such assets is, in the opinion of the Commissioner-General of Inland Revenue, not ascertainable from such balance sheet, means, an amount determined in the manner specified by such Commissioner-General;
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(b) when used in relation to any such assets of the foreign company as are not specified in paragraph (a), means the value shown in the books of account of the foreign company as the value of such assets on the date of transfer of those assets to the Sri Lanka company; and
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(c) when used in relation to any liabilities of the foreign company, means the amounts shown in the books of account of the foreign company as the amounts of such liabilities on the date of transfer of such liabilities to the Sri Lanka company;
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“relevant date ”
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(a) in the case of any foreign company which is not an ” exempted company ” within the meaning of the Companies (Special Provisions) Law, No. 19 of 1974, means the ” appointed date ” within the meaning of that Law, and
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(b) in the case of a foreign company which is an ” exempted company ” within the meaning of the Companies (Special Provisions) Law, No. 19 of 1974, means the date on or before which the direction of exemption under that Law in respect of that company ceases to be in force.
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Exemption from stamp duty.
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3. Notwithstanding anything to the contrary in any other written law-
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(a) the foreign company shall be exempt from the payment of stamp duty-
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(i) on any instrument which is executed by, or on behalf of, or in favour of, the foreign company in connection with the transfer of its business, assets and liabilities to the Sri Lanka company and on which but for the exemption granted by this provision, the foreign company would be liable to pay the stamp duty, and
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(ii) on the transfer by the foreign company to any of its shareholders of any shares held in the Sri Lanka company by the foreign company if such transfer is made within twelve months after the allotment of the shares to the foreign company by the Sri Lanka company and if the shares are transferred to such shareholders in the same proportion in which such shareholders held shares in the foreign company immediately prior to such transfer; and
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(b) the Sri Lanka company shall be exempt from the payment of stamp duty-
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(i) on any instrument which is executed by, or on behalf of, or in favour of, the Sri Lanka company in connection with the transfer to the Sri Lanka company of the business, assets and liabilities of the foreign company and on which but for the exemption granted by this provision, the Sri Lanka company would be liable to pay the stamp duty, and
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(ii) on the share certificates relating to the shares in the Sri Lanka company allotted to the foreign company and to not more than nine nominees of the foreign company each nominee holding not more than one share in trust for the foreign company.
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Section 58 of the Finance Act, No. 11 of 1963, not to apply to transfer of shares in the Sri Lanka company to shareholders of the foreign company.
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4. The provisions of section 58 of the Finance Act, No. 11 of 1963, shall not apply to-
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(a) the transfer by the foreign company of shares in the Sri Lanka company to persons who are shareholders in the foreign company if such transfer is made within twelve months after the allotment of the shares to the foreign company by the Sri Lanka company and if the shares are transferred to such shareholders in the same proportion in which such shareholders held shares in the foreign company immediately prior to such transfer, and
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(b) the transfer of any share in the Sri Lanka company held in trust for the foreign company by a nominee of the foreign company to any other nominee of that foreign company to be held in trust for the foreign company.
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Modification, subject to which the Inland Revenue Act, No. 4 of 1963, shall apply to the foreign company, and to the Sri Lanka company.
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5. The Inland Revenue Act, No. 4 of 1963, in its application to the foreign company, and to the Sri Lanka company in connection with or in relation to but only in connection with or in relation to, any matter arising out of the transfer by the foreign company of its business, assets and liabilities in Sri Lanka to the Sri Lanka company shall have effect subject to the modifications set out hereunder, that is to say-
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(A) in respect of the foreign company-
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(1) no deduction under section 10 of that Act shall be allowed in respect of any sum given by the foreign company to the Sri Lanka company for the payment of any gratuity, pension, or other benefit by the Sri Lanka company to any employee for services rendered by him to the foreign company;
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(2) no account shall be taken of any capital gains or capital losses of the foreign company arising from-
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(a) the transfer of its business and property to the Sri Lanka company, or
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(b) the transfer by the foreign company to any of its shareholders of any shares in the Sri Lanka company if the transfer of such shares is made within twelve months after the allotment of shares to the foreign company by the Sri Lanka company and if such shares are transferred to the shareholders in the same proportion in which such shareholders held shares in the foreign company immediately prior to such transfer;
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(3) in relation to the transfer of any plant, machinery, fixtures or building to the Sri Lanka company by the foreign company such of the provisions of section 10 of that Act as ordinarily are applicable upon such transfer shall have no application to the foreign company;
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(4) the provisions of section 15 (3) of that Act shall have no application; and
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(B) in respect of the Sri Lanka company-
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(1) that company shall, for the purpose of ascertaining its profits and income, be entitled to deduct-
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(a) the preliminary expenses including conveyance expenses incurred in connection with the formation of the company;
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(b) any sum paid to an employee as pension, gratuity or other benefit for services rendered by him to the foreign company; and
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(c) where more than fifty per centum of the shares in that company are held by the foreign company or by such shareholders in the foreign company as are not citizens of Sri Lanka or by both, the expenses incurred by the Sri Lanka company in respect of the visit to Sri Lanka once in every year by one director of the Sri Lanka company who is not resident in Sri Lanka in connection with the production of the profits or income from the trade or business carried on by the Sri Lanka company;
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(2) for the purpose of computing the capital gain or the capital loss of the Sri Lanka company arising from the change of ownership of any property previously transferred to that company by the foreign company-
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(a) the value of such property at the time of its acquisition by the Sri Lanka company shall-
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(i) where such property is property in respect of which a deduction for depreciation has been allowed under section 10 of that Act to the foreign company, be the amount which under sub-paragraph (xi) of paragraph (j) of subsection (4) of section 3 of that Act would have been the value of such property at the time of its acquisition by the foreign company, had the foreign company been the owner of such property immediately before the occurrence of the change of ownership, and
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(ii) where such property is not any property referred to in sub-paragraph (i), be the amount which under such of the other provisions of paragraph (j) of subsection (4) of section 3 of that Act as are relevant to the case would have been the value of such property at the time of its acquisition by the foreign company, had the foreign company been the owner of such property immediately before the occurrence of the change of ownership; and
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(b) any expenditure which was previously incurred by the foreign company in respect of such property and which the foreign company would have been entitled to deduct had the foreign company been the owner of such property immediately before the occurrence of the change of ownership shall be an expenditure which the Sri Lanka company shall be entitled to deduct;
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(3) for the purpose of the application of the provisions of section 10 of that Act to the Sri Lanka company in relation to any such plant, machinery, fixtures or building transferred to that company by the foreign company, the Sri Lanka company and the foreign company shall be treated as one and the same company and accordingly-
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(a) no deduction under paragraph (h) of subsection (1) of section 10 of that Act for depreciation by wear and tear of any such plant, machinery or fixtures (transferred to the Sri Lanka company by the foreign company) shall be allowed to the Sri Lanka company;
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(b) any deduction previously made under the provisions of that section by the foreign company in respect of any such plant. section by the foreign company in respect of any such plant, machinery or fixtures shall be treated as a deduction made by the Sri Lanka company;
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(c) where the Sri Lanka company sells, discards, or otherwise disposes of, or otherwise ceases to be the owner of, such plant, machinery, fixtures or building the provisions of that section shall apply to the Sri Lanka company in respect of such plant, machinery, fixtures or building in the same manner and to the same extent as those provisions would have applied to the foreign company if the foreign company had been the owner of such plant, machinery, fixtures or building immediately before the occurrence of the sale, discard or other disposal or cessation of ownership;
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(d) in the event of the repair or renewal by the Sri Lanka company of any such plant, machinery, fixtures or building that company shall be entitled to make in respect of the repair or renewal the same deduction the foreign company would have been entitled to make if the repair or renewal had been effected by the foreign company; and
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(e) for the purpose of calculating the written-down value of any such plant, machinery or fixtures the cost to the Sri Lanka company of such plant, machinery or fixtures shall be the written-down value of such plant, machinery or fixtures at the time of the transfer of such plant, machinery or fixtures to the Sri Lanka company;
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(4) any loss (including any capital loss) which was incurred by the foreign company in respect of which a deduction could have been made by that company if it had not transferred its business to the Sri Lanka company shall be treated as a loss incurred by the Sri Lanka company and accordingly the Sri Lanka company shall be entitled to make in respect of that loss any deduction which the foreign company could have made under that Act had it not transferred its business;
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(5) any amount in respect of which a deduction could have been made by the foreign company under section 15 (4) of that Act if it had not transferred its business to the Sri Lanka company shall be treated as an amount in respect of which the Sri Lanka company shall be entitled to make a deduction.
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Liability of Sri Lanka company to any tax or other dues payable by foreign company.
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6.
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(1) The Sri Lanka company shall be liable to do all such acts, matters and things as the foreign company would have been liable to do under any written law administered by the Commissioner-General of Inland Revenue.
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(2) The Sri Lanka company shall be chargeable with, and shall be liable to pay, any tax or other dues which the foreign company is chargeable with or liable to pay under any written law administered by the Commissioner-General of Inland Revenue in respect of any period prior to the transfer of its business.
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Certain Acts not to apply to transfer of estates by foreign companies to Sri Lanka companies.
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7.
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(1) The provisions of the Tea and Rubber Estates (Control of Fragmentation) Act, No. 2 of 1958, and of the Estates (Control of Transfer and Acquisition) Act, No. 2 of 1972, shall not apply to the transfer of ownership, made by a foreign company to a Sri Lanka company, of a tea or rubber estate within the meaning of the Tea and Rubber Estates (Control of Fragmentation) Act, No. 2 of 1958, or as the case may be, of an estate within the meaning of the Estates (Control of Transfer and Acquisition) Act, No. 2 of 1972.
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(2) In this section ” transfer of ownership “-
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(a) in relation to a tea or rubber estate within the meaning of the Tea and Rubber Estates (Control of Fragmentation) Act, No. 2 of 1958, has the same meaning as in that Act; and
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(b) in relation to an estate within the meaning of the Estates (Control of Transfer and Acquisition) Act, No. 2 of 1972, has the same meaning as in that Act.
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Interpretation.
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8. For the purposes of this Law, unless the context otherwise requires,
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“Commissioner-General of Inland Revenue ” means the Commissioner-General of Inland Revenue appointed for the purposes of the Inland Revenue Act, No. 4 of 1963, and includes any such Commissioner of Inland Revenue or Deputy Commissioner of Inland Revenue as is specially authorized by the Commissioner-General of Inland Revenue either generally or for some specific purpose to act on his behalf;
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“Sri Lanka company ” means-
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(a) any company (other than a private company within the meaning of the Companies Ordinance) which is incorporated in Sri Lanka on or after June 19, 1974, or
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(b) any company-
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(i) which is incorporated in Sri Lanka prior to that date,
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(ii) which, in the case of the transfer to it of the undertaking carried on by one foreign company, has on that date a share capital held entirely by that foreign company or by any nominee or nominees of that foreign company, and in the case of the transfer to it of undertakings carried on by two or more foreign companies, has on that date a share capital held entirely by such foreign companies or by their nominees where the entirety of the share capital of which foreign companies is held by a company incorporated outside Sri Lanka,
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(iii) which is, on the date of transfer to it of the undertaking, not a private company within the meaning of the Companies Ordinance.
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