The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007

PART 3 U.K. AMENDMENTS OF FA 1996

15.  Schedule 9 to FA 1996 (loan relationships: special computational provisions) M1 is amended as follows. U.K.

Marginal Citations

M1 1996 c. 8.

Loan relationships U.K.

16.  After paragraph 12C (European cross-border mergers) (inserted by paragraph 9 of Schedule 2) insert—

“Cross-border transfer of business within European Community U.K.

12D.— (1) This paragraph applies where—

(a) a company resident in one member State transfers to a company resident in another member State the whole or part of a business carried on in the United Kingdom,

(b) the transfer is wholly in exchange for shares or debentures issued by the transferee to the transferor,

(c) the transferor and the transferee each make a claim under this paragraph, and

(d) either—

(i) the transferee is resident in the United Kingdom immediately after the transfer, or

(ii) the transferee is within the charge to corporation tax immediately after the transfer in accordance with section 11 of the Taxes Act 1988 M2 .

(2) This paragraph also applies where a company transfers part of its business to one or more companies if—

(a) the transferor is resident in one member State,

(b) the part of the transferor's business which is to be transferred is carried on by the transferor in the United Kingdom,

(c) at least one transferee is resident in a member State other than that in which the transferor is resident (and each transferee is resident in a member State, but not necessarily the same one),

(d) the transferor continues to carry on a business,

(e) the conditions in sub-paragraph (1)(c) and (d) are satisfied (for which purpose references to the transferee shall be treated as references to each of the transferees), and

(f) either of the following conditions is satisfied.

(3) Condition 1 is that the transfer is made in exchange for shares in or debentures of each transferee company to the persons holding shares in or debentures of the transferor.

(4) Condition 2 is that the transfer is not made in exchange for the issue of shares in or debentures of each transferee by reason only, and to the extent only, that a transferee is prevented from complying with Condition 1 by section 658 of the Companies Act 2006 (rule against limited company acquiring own shares) or by a corresponding provision of the law of another member State preventing the issue of shares or debentures to itself.

(5) If Condition 2 applies in relation to the whole or part of a transfer, sections 24 and 122 of the Taxation of Chargeable Gains Act 1992 do not apply in relation to the transfer.

(6) Where this paragraph applies, in determining credits and debits to be brought into account for the purposes of this Chapter in respect of a loan relationship, if an asset or liability which represents the loan relationship is transferred in the course of the transfer of the business or part mentioned in sub-paragraph (1) or (2), the transferor and the transferee companies shall be treated as having entered into the transfer for a consideration equal to the notional carrying value (within the meaning given by paragraph 12(2)) of the asset or liability.

(7) Paragraph 12(2A) M3 shall have effect (with any necessary modifications) in relation to this paragraph as it has effect in relation to paragraph 12.

12E.— (1) This paragraph applies to a transaction if—

(a) a company resident in the United Kingdom transfers to a company resident in another member State the whole or part of a business which immediately before the transfer the transferor carried on in a member State other than the United Kingdom through a permanent establishment, and

(b) the transfer is wholly or partly in exchange for shares or debentures issued by the transferee to the transferor.

(2) This paragraph also applies where a company resident in the United Kingdom transfers part of its business to one or more companies if—

(a) the part of the transferor's business which is to be transferred was carried on immediately before the transfer in a member State other than the United Kingdom through a permanent establishment,

(b) at least one transferee is resident in a member State other than the United Kingdom (and each transferee is resident in a member State, but not necessarily the same one),

(c) the transferor continues to carry on a business after the transfer, and

(d) either of the following conditions is satisfied.

(3) Condition 1 is that the transfer is made in exchange for the issue of shares in or debentures of each transferee company to the persons holding shares in or debentures of the transferor.

(4) Condition 2 is that the transfer is not made in exchange for the issue of shares in or debentures of each transferee by reason only, and to the extent only, that a transferee is prevented from complying with Condition 1 by section 658 of the Companies Act 2006 (rule against limited company acquiring own shares) or by a corresponding provision of the law of another member State preventing the issue of shares or debentures to itself.

(5) If, as a result of a transaction to which this paragraph applies, tax would have been chargeable under the law of one or more other member States in respect of the transfer of the loan relationship but for the Mergers Directive, Part 18 of the Taxes Act 1988 (double taxation relief) including any arrangements having effect by virtue of section 788 of that Act (bilateral relief) M4 shall apply as if that tax had been chargeable.

(6) In calculating tax notionally chargeable under sub-paragraph (3) it shall be assumed—

(a) that to the extent permitted by the law of the other member State losses arising on the transfer are set against gains arising on the transfer, and

(b) that any relief due to the transferor under that law is claimed.

12F.— (1) Paragraph 12D or 12E shall apply in relation to the transfer of the whole or part of a business only if—

(a) it is effected for bona fide commercial reasons, and

(b) it does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to income tax, corporation tax or capital gains tax.

(2) But sub-paragraph (1) shall not prevent paragraph 12D or 12E from applying in relation to a transfer if before the transfer the Commissioners for Her Majesty's Revenue and Customs have on the application of the transferor and transferee or transferees notified them that the Commissioners are satisfied that sub-paragraph (1) will not prevent paragraph 12D or 12E from applying in relation to the transfer.

(3) Section 138(2) to (5) of the TCGA 1992 M5 shall have the same effect in relation to sub-paragraph (2) above as in relation to section 138(1).

Exchanges, &c.: treatment of loan relationships U.K.

12G.— (1) This paragraph applies if sections 127 to 130 of TCGA 1992 (equation of original shares and new holding) apply in relation to a reorganisation.

(2) In this paragraph “the original shares” has the meaning given by section 126(1) of TCGA 1992.

(3) Where this paragraph applies and the original shares consist of or include an asset representing a loan relationship, then unless sub-paragraph (4), (5) or (6) applies such debits and credits shall be brought into account for the purposes of this Chapter as would have been brought into account if the transaction had been a disposal of the old asset at fair value.

(4) This sub-paragraph applies if the transaction is a conversion of securities (within the meaning given by section 132(3) M6 of TCGA 1992) occurring in consequence of the operation of the terms of a security or a debenture which is not a security.

(5) This sub-paragraph applies if paragraph 12B, 12C, 12D(2) or 12E(2) above applies in relation to the transaction.

(6) This sub-paragraph applies if—

(a) section 135 M7 of TCGA 1992 applies in relation to the transaction, and

(b) company A is resident in one member State and company B is resident in another member State.

(7) If sub-paragraph (4), (5) or (6) applies, such debits and credits shall be brought into account for the purposes of this Chapter as would have been brought into account if the transaction had been a disposal of the old asset at a consideration equal to its notional carrying value (within the meaning given by paragraph 12(2)).

(8) Paragraph 12(2A) M8 shall have effect (with any necessary modifications) in relation to sub-paragraphs (4) to (7) as it has effect in relation to paragraph 12.”.

Marginal Citations

M2 Section 11 was amended by section 98 of the Finance Act 1990 (c. 29), Schedule 23 to the Finance Act 1993 (c. 34), section 165 of the Finance Act 1998 (c. 36) and section 149 of the Finance Act 2003 (c. 14).

M3 Paragraph 12(2A) was inserted by paragraph 29 of Schedule 25 to the Finance Act 2002.

M4 Section 788 was amended by paragraphs 1 and 2 of Schedule 30 to the Finance Act 2000, section 88 of the Finance Act 2002, section 198 of the Finance Act 2003, section 882 of, and Schedule 1 to, the Income Tax (Trading and Other Income) Act 2005 (c. 5) and section 178 of the Finance Act 2006.

M5 1992 c. 12.

M6 Section 132(3) was inserted by section 88 of the Finance Act 1997.

M7 Section 135 was substituted by paragraph 7 of Schedule 9 to the Finance Act 2002.

M8 Paragraph 12(2A) was inserted by paragraph 29 of Schedule 25 to the Finance Act 2002.

17.  In paragraph 12A (transferee leaving group) M9 — U.K.

(a) after sub-paragraph (5) insert—

“(5A) Where an asset or liability which represents a loan relationship is transferred as part of the process of a transfer to which paragraph 12B M10 or 12D applies, and in consequence of the transfer the transferee company ceases to be a member of a group (“Group 1”)—

(a) the transferee shall not be treated for the purposes of this paragraph as having left Group 1, and

(b) if in consequence of the transfer the transferee becomes a member of another group (“Group 2”) it shall be treated, for the purposes of this paragraph, as if Group 1 and Group 2 were the same.”, and

(b) in sub-paragraph (8), in the definition of “exempt distribution” after “section 213(2)” insert “ or 213A M11 ”.

Marginal Citations

M9 Paragraph 12A of Schedule 9 was inserted by paragraph 18(1) of Schedule 7 to the Finance (No. 2) Act 2005.

M10 Paragraph 12B was inserted by section 54 of the Finance (No. 2) Act 2005.

M11 Section 213A is inserted by paragraph 13 of Schedule 1 to these Regulations.