Corporation Tax Act 2009

Chapter 14 European cross-border mergers

Introduction

431 Introduction to Chapter

(1) This Chapter applies if the following conditions are met—

(a) conditions A to D,

(b) in the case of a merger within subsection (3)(a), (b) or (c), condition E, and

(c) in the case of a merger within subsection (3)(c) or (d), condition F,

but see section 437 (tax avoidance etc) and section 438 (disapplication of Chapter where transparent entities involved).

(2) Sections 435 and 436 (reorganisations involving loan relationships) also apply in cases that would be within subsection (1) apart from condition D not being met if, in addition to the conditions in section 435(1)(a) and (b), condition G is met in relation to a transfer in the course of the merger in which the reorganisation in question occurs.

(3) Condition A is that—

(a) an SE is formed by the merger of two or more companies in accordance with Articles 2(1) and 17(2)(a) or (b) of Council Regulation (EC) No. 2157/2001 on the Statute for a European company (Societas Europaea),

(b) an SCE is formed by the merger of two or more co-operative societies, at least one of which is a society registered under the Industrial and Provident Societies Act 1965 (c. 12), in accordance with Articles 2(1) and 19 of Council Regulation (EC) No. 1435/2003 on the Statute for a European Co-operative Society (SCE),

(c) a merger is effected by the transfer by one or more companies of all their assets and liabilities to a single existing company, or

(d) a merger is effected by the transfer by two or more companies of all their assets and liabilities to a single new company (other than an SE or an SCE) in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures.

(4) Condition B is that each merging company is resident in a member State.

(5) Condition C is that the merging companies are not all resident in the same State.

(6) Condition D is that immediately after the merger the transferee is within the charge to corporation tax.

(7) Condition E is that—

(a) the transfer of assets and liabilities to the transferee in the course of the merger is made in exchange for the issue of shares or debentures by the transferee to each person holding shares in or debentures of a transferor, or

(b) that transfer is not so made only because, and only so far as, the transferee is prevented from so issuing such shares or debentures by section 658 of the Companies Act 2006 (c. 46) (general rule against limited company acquiring own shares) or by a corresponding provision of the law of another member State preventing such an issue.

(8) Condition F is that in the course of the merger each transferor ceases to exist without being in liquidation (within the meaning given by section 247 of the Insolvency Act 1986 (c. 45)).

(9) Condition G is that—

(a) in the course of the merger a company resident in the United Kingdom (“company A”) transfers to a company resident in another member State all assets and liabilities relating to a business which company A carried on in a member State other than the United Kingdom through a permanent establishment, and

(b) that transfer includes the transfer of an asset or liability representing a loan relationship.

(10) In this Chapter, “the merger” and “the merging companies” have the same meaning as in this section.

(11) See—

(a) section 432 for the meaning of “the transferee” and “transferor”, and

(b) section 439 for the meaning of “company”, “co-operative society” and “resident in a member State”.

432 Meaning of “the transferee” and “transferor”

(1) In this Chapter, “the transferee” means—

(a) in relation to a merger within section 431(3)(a), the SE,

(b) in relation to a merger within section 431(3)(b), the SCE, and

(c) in relation to a merger within section 431(3)(c) or (d), the company to which assets and liabilities are transferred.

(2) In this Chapter “transferor” means—

(a) in relation to a merger within section 431(3)(a), a company merging to form the SE,

(b) in relation to a merger within section 431(3)(b), a co-operative society merging to form the SCE, and

(c) in relation to a merger within section 431(3)(c) or (d), a company transferring all its assets and liabilities.

Transfers of loan relationships at notional carrying value

433 Transfer of loan relationship at notional carrying value

(1) This section applies if in the course of the merger a transferor transfers an asset or liability representing a loan relationship to the transferee.

(2) For the purpose of determining the credits and debits to be brought into account in respect of the loan relationship in accordance with this Part, the transferor and the transferee are treated as having entered into the transfer of that asset or liability for consideration of an amount equal to the notional carrying value of the asset or liability.

(3) For the purposes of this section—

(a) “carrying value” has the same meaning as it has for the purposes of section 316 (see section 317), and

(b) “notional carrying value”, in relation to an asset or liability, means the amount which would have been its carrying value in the accounts of the transferor if a period of account had ended immediately before the date when the transferor ceased to be a party to the loan relationship.

(4) This section is subject to section 434.

434 Transferor using fair value accounting

(1) This section applies instead of section 433 if, in a case where that section would otherwise apply, the transferor is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship (see subsection (4)).

(2) The amount which is to be brought into account by the transferor in respect of the transfer of the asset or liability mentioned in section 433(1) (“the transferor’s amount”) is—

(a) if an asset is to be brought into account, its fair value as at the date when the transferee becomes a party to the loan relationship, or the fair value of the rights under or interest in it as at that date, and

(b) if a liability is to be brought into account, its fair value as at that date.

(3) For any accounting period in which the transferee is a party to the loan relationship, for the purpose of determining the credits and debits to be brought into account in respect of it for the purposes of this Part, the transferee is treated as if it had acquired the asset or liability representing the relationship for consideration of an amount equal to the transferor’s amount.

(4) The transferor is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship only if the credits and debits to be brought into account for the purposes of this Part as respects the relationship are determined on that basis.

(5) It does not matter for the purposes of subsection (4) if the transferor does not otherwise use fair value accounting in respect of the loan relationship.

435 Reorganisations involving loan relationships

(1) This section applies if—

(a) sections 127 to 130 of TCGA 1992 (reorganisations: equation of original shares and new holding)—

(i) apply in relation to a reorganisation, or

(ii) would so apply but for section 116(5) of that Act (which disapplies those sections where the original shares or the new holding consists of or includes a qualifying corporate bond),

(b) the original shares consist of or include an asset representing a loan relationship, and

(c) section 433 or 434 applies in relation to a transfer in the course of the merger in which the reorganisation occurs or, in a case where those sections would apply apart from condition D in section 431 not being met, condition G in that section is met in relation to such a transfer.

(2) For the purposes of this Part such debits and credits are to be brought into account as would be brought into account if the reorganisation were a disposal of the asset representing the loan relationship for consideration of an amount equal to its notional carrying value.

(3) For the purposes of this section, the notional carrying value of that asset is the amount which would have been its carrying value in the accounts of the original holder if a period of account had ended immediately before the date when the reorganisation occurred.

(4) In this section—

• “carrying value” has the same meaning as it has for the purposes of section 316 (see section 317),

• “original holder” means a person holding the original shares immediately before the reorganisation,

• “original shares” has the meaning given by section 126(1) of TCGA 1992 (application of sections 126 to 131 of that Act), and

• “reorganisation” includes anything to which sections 127 to 130 of that Act apply as if it were a reorganisation.

(5) This section is subject to—

(a) section 436 (original holder using fair value accounting), and

(b) section 438 (disapplication of Chapter where transparent entities involved).

436 Original holder using fair value accounting

(1) This section applies instead of section 435 if, in a case where that section would otherwise apply, the original holder is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship constituting or included in the original shares.

(2) The amount which is to be brought into account by the original holder in respect of the reorganisation (“the disposal amount”) is the fair value of the asset representing the loan relationship as at the date when the reorganisation occurred, or of the rights under or interest in that relationship as at that date.

(3) For any accounting period in which a successor creditor company is a party to the loan relationship, for the purpose of determining the credits and debits to be brought into account in respect of the relationship for the purposes of this Part, the successor creditor company is treated as if it had acquired the asset representing the loan relationship for consideration of an amount equal to the disposal amount.

(4) Subsections (4) and (5) of section 434 apply for the purposes of this section as they apply for the purposes of that section, but taking the references in that section to the transferor as references to the original holder.

(5) In this section—

• “successor creditor company” means a company in relation to which the loan relationship constituting or included in the original shares is a creditor relationship immediately after the reorganisation, and

• “original holder” and “original shares” have the same meaning as in section 435.

(6) This section is subject to section 438 (disapplication of Chapter where transparent entities involved).

Exception for tax avoidance cases

437 Tax avoidance etc

(1) This Chapter does not apply in relation to the merger if—

(a) the merger is not effected for genuine commercial reasons, or

(b) the merger forms part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax.

(2) But subsection (1) does not prevent this Chapter from applying if before the merger—

(a) any of the merging companies has applied to the Commissioners for Her Majesty’s Revenue and Customs, and

(b) the Commissioners have notified the merging companies that they are satisfied that subsection will not have that effect.

(3) Sections 427 and 428 have effect in relation to subsection (2) as in relation to section 426(2), taking the references in section 428 to section 426(2)(b) as references to subsection (2)(b) of this section.

Transparent entities

438 Disapplication of Chapter where transparent entities involved

(1) This section applies if one or more of the merging companies is a transparent entity.

(2) If as a result of the merger the assets and liabilities of a transparent entity are transferred to another company, this Chapter does not apply in relation to the transfer.

(3) If as a result of the merger the assets and liabilities of one or more other companies are transferred to a transparent entity, sections 435 and 436 do not apply to the new holding.

(4) In this section—

• “new holding” has the meaning given by section 126(1) of TCGA 1992 (application of sections 126 to 131 of that Act), and

• “transparent entity” means a company which is resident in a member State other than the United Kingdom and does not have an ordinary share capital.

Interpretation

439 Interpretation

(1) In this Chapter—

• “company” means any entity listed as a company in the Annex to the Mergers Directive, and

• “co-operative society” means a society registered under the Industrial and Provident Societies Act 1965 (c. 12) or a similar society governed by the law of a member State other than the United Kingdom.

(2) For the purposes of this Chapter, a company is resident in a member State if—

(a) it is within a charge to tax under the law of the State as being resident for that purpose, and

(b) it is not regarded, for the purpose of any double taxation relief arrangements to which the State is a party, as resident in a territory not within a member State.