According to article 141 of the Iranian commercial code (1968) ” In the case of the loss of a minimum of half the company’s capital, the board of directors is bound to call an extraordinary general meeting immediately, to decide whether the company shall be wound up or shall continue its operations”. On this basis, lots of giant companies, as their financial statements show, are bankrupt. Since their cumulative losses have risen by more than half of their registered capital, Accordingly, Iran khodro and Saipa -two of the major automaker’s company in Iran- are legally considered bankrupt. However, new facilities are being offered to these companies and accordingly they may be withdrawn from article 141. According to the new bylaw recently approved by the government, automakers can update the value of their assets and thus increase their fixed capital. As capital increase through revaluation, the ratio of accumulated losses to fixed capital changes and automakers are therefore excluded from Art.141.

Iran Khodro and Saipa have already made some preparatory steps to get out of bankruptcy. In parallel, in the process of re-evaluating the assets, automakers can take advantage of their various assets, including real estate, machinery, and even long- term fixed investment. Authorized audits shall do a reevaluation of such assets. This process shall be done by a formal petition of each company to the Association of Judicial Experts and therefore, the companies do not interfere with the selection of financial experts.

In addition to the above mentioned, terms of executive bylaw approved by the government are as follow:

Pursuant to note 1 of Article 149 of the Direct Tax Act, the increase in the cost arising from the revaluation of the assets of legal entities shall not be subject to income tax due to accounting standards, and the depreciation expense resulting from the revaluation increase. Expenses are not considered taxable and are measured at the time of sale or exchange of revalued assets with the differences between the sale price and the book value without applying revaluation in calculating taxable income.

Article 10 of executive bylaw of Note 1 of Article 149 of Direct Tax Law:

Article 10: “Covering losses from the assets revaluation surplus and transferring the surplus to the profit or loss account, or distributing it in any form between the owner of the assets constitute compliance with accounting standards and is subject to income tax.

Note 1: legal entities subject to note 1 of article 149 of Direct Tax Act, within one year of asset’s revaluation shall begin legal procedure for transferring the revaluation of surplus to the capital account and record increase capital in Iran’s registration office. This surplus transferred amount shall not be subject to income tax.

It should be noted that the increase in capital from this location is only acceptable if this amount is added within one year of the revaluation and this is only possible once every five years. This limitation set force in this bylaw shall apply only to the revaluation of each category of assets separately from other categories. Therefore revaluation of different asset categories other than the aforementioned is allowed during those five years.

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