Finance Bill

House of Commons

Session 2005 - 06
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Finance Bill

Finance Bill
Part 4 — European company statute
44

(b)
each merging company is resident in a member State,
(c)
the merging companies are not all resident in the same State,
and
(d)
the merger does not constitute or form part of a scheme of
reconstruction within the meaning of section 136.
5
(2)
Where this section applies, the merger shall be treated for the purposes
of section 136 as if it were a scheme of reconstruction.
(3)
Where section 136 applies by virtue of subsection (2) above section
136(6) (and section 137) shall not apply.
(4)
Subsections (6) and (7) of section 140E apply for the purposes of this
10
section as they apply for the purposes of that section.”
(2)
Subsection (1) shall have effect in relation to the formation of an SE which
occurs on or after 1st April 2005.
52
Intangible fixed assets
(1)
After paragraph 85 of Schedule 29 to FA 2002 (intangible fixed assets: gains and
15
losses: transfer of trade) insert—
“Formation of SE by merger
85A   (1)
This paragraph applies where—
(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
20
Regulation (EC) 2157/2001 on the Statute for a European
Company (Societas Europaea),
(b)
each merging company is resident in a member State,
(c)
the merging companies are not all resident in the same State,
and
25
(d)
paragraph 84 above does not apply to any qualifying
transferred assets.
      (2)
Where this paragraph applies a transfer of qualifying transferred
assets is treated for the purposes of this Schedule as tax-neutral (see
paragraph 140).
30
      (3)
For the purposes of sub-paragraphs (1) and (2) an asset is a
qualifying transferred asset if—
(a)
it is transferred as part of the process of the merger,
(b)
it is a chargeable intangible asset in relation to the transferor
immediately before the transfer, and
35
(c)
it is a chargeable intangible asset in relation to the transferee
immediately after the transfer.
      (4)
Sub-paragraph (2) shall apply in relation to the formation of an SE by
merger only if—
(a)
it is effected for bona fide commercial reasons, and
40
(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 corporation tax, capital gains tax or income tax.

Finance Bill
Part 4 — European company statute
45

      (5)
Paragraph 84(6) (and therefore paragraph 88) shall apply, with any
necessary modifications, in relation to sub-paragraph (4) above as in
relation to paragraph 84(5).
      (6)
For the purposes of this paragraph a company is resident in a
member State if—
5
(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 purposes of any double taxation
relief arrangements to which the State is a party, as resident
in a territory not within a member State.”
10
(2)
Subsection (1) shall have effect in relation to the formation of an SE which
occurs on or after 1st April 2005.
53
Intangible fixed assets: permanent establishment in another member State
(1)
After paragraph 87 of Schedule 29 to FA 2002 (intangible fixed assets: gains and
losses: transfer of non-UK trade) insert—
15
“Formation of SE by merger: transfer of non-UK trade
87A   (1)
This paragraph applies where—
(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) 2157/2001 on the Statute for a European
20
Company (Societas Europaea),
(b)
each merging company is resident in a member State,
(c)
the merging companies are not all resident in the same State,
(d)
in the course of the merger a company resident in the United
Kingdom (“the transferor”) transfers to a company resident
25
in another member State (“the transferee”) the whole or part
of a trade that, immediately before the transfer, the transferor
carried on in a member State other than the United Kingdom
through a permanent establishment,
(e)
the transfer includes the whole of the assets of the transferor
30
used for the purposes of the trade or part,
(f)
the transfer includes intangible fixed assets—
(i)
that are chargeable intangible assets in relation to the
transferor immediately before the transfer, and
(ii)
in the case of one or more of which the proceeds of
35
realisation exceed the cost recognised for tax
purposes, and
(g)
no claim is made under paragraph 86 above in relation to
those assets.
      (2)
Where tax would, but for the Mergers Directive, have been
40
chargeable in the member State in which the permanent
establishment is located, Part 18 of the Taxes Act 1988 (double
taxation relief), including any arrangements having effect by virtue
of section 788 (double taxation agreements), shall have effect as if the
amount of tax that would, but for the Mergers Directive, have been
45
charged in respect of the transfer of the chargeable intangible assets,
had actually been charged.

Finance Bill
Part 4 — European company statute
46

      (3)
In this paragraph “the Mergers Directive” has the same meaning as
in paragraph 87.
      (4)
For the purposes of this paragraph 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
5
resident for that purpose, and
(b)
it is not regarded, for the purposes of any double taxation
relief arrangements to which the State is a party, as resident
in a territory not within a member State.
      (5)
This paragraph does not apply to the formation of an SE by merger
10
if—
(a)
it is not effected for bona fide commercial reasons, or
(b)
it 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.
15
      (6)
Sub-paragraph (5) shall not affect the operation of this paragraph in
any case where, before the transfer, Her Majesty’s Revenue and
Customs have, on the application of the transferor, notified the
transferor that they are satisfied that the merger will be effected for
bona fide commercial reasons and will not form part of any such
20
scheme or arrangements as are mentioned in sub-paragraph (5)(b).
      (7)
An application under sub-paragraph (6) must be made in accordance
with paragraph 88.”
(2)
Subsection (1) shall have effect in relation to the formation of an SE which
occurs on or after 1st April 2005.
25
54
Loan relationships
(1)
After paragraph 12A of Schedule 9 to FA 1996 (loan relationships: gains and
losses: continuity of treatment for groups) insert—
“Formation of SE by merger
12B   (1)
This paragraph applies where—
30
(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) 2157/2001 on the Statute for a European
Company (Societas Europaea),
(b)
each merging company is resident in a member State,
35
(c)
the merging companies are not all resident in the same State,
and
(d)
either—
(i)
immediately after formation the SE is resident in the
United Kingdom and within the charge to
40
corporation tax in accordance with section 6 of the
Taxes Act, or
(ii)
immediately after formation the SE is not resident in
the United Kingdom but is within the charge to
corporation tax in accordance with section 11 of the
45
Taxes Act 1988.

Finance Bill
Part 4 — European company statute
47

      (2)
Where this paragraph applies, the transfer in the course of the
merger of an asset or liability which represents a loan relationship
shall be disregarded except—
(a)
for the purpose of determining the debits or credits to be
brought into account in respect of exchange gains or losses
5
and identifying the company which is to bring them into
account, and
(b)
for the purpose of identifying the company in whose case a
debit or credit which does not relate to the transfer is to be
brought into account.
10
      (3)
Where this paragraph applies, the transferor and the transferee
companies of an asset or liability which represents a loan
relationship shall be deemed, except for the purposes specified in
sub-paragraph (2)(a) and (b), to be the same company.
      (4)
Paragraph 12(2A) shall have effect (with any necessary
15
modifications) in relation to this paragraph as in relation to
paragraph 12.
      (5)
Sub-paragraphs (2) and (3) shall apply in relation to the formation of
an SE by merger only if—
(a)
it is effected for bona fide commercial reasons, and
20
(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 corporation tax, capital gains tax or income tax.
      (6)
But sub-paragraph (5) shall not have the effect of preventing sub-
paragraphs (2) and (3) from applying if before the merger Her
25
Majesty’s Revenue and Customs have on the application of the
merging companies notified them that Her Majesty’s Revenue and
Customs are satisfied that sub-paragraph (5) will not have that effect.
      (7)
For the purposes of this paragraph a company is resident in a
member State if—
30
(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 purposes of any double taxation
relief arrangements to which the State is a party, as resident
in a territory not within a member State.”
35
(2)
Subsection (1) shall have effect in relation to the formation of an SE which
occurs on or after 1st April 2005.
55
Derivative contracts
(1)
After paragraph 30A of Schedule 26 to FA 2002 (derivative contracts: profits:
groups) insert—
40
“Formation of SE by merger
30B   (1)
This paragraph applies where—
(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) 2157/2001 on the Statute for a European
45
Company (Societas Europaea),

Finance Bill
Part 4 — European company statute
48

(b)
each merging company is resident in a member State,
(c)
the merging companies are not all resident in the same State,
and
(d)
either—
(i)
immediately after formation the SE is resident in the
5
United Kingdom and within the charge to
corporation tax in accordance with section 6 of the
Taxes Act, or
(ii)
immediately after formation the SE is not resident in
the United Kingdom but is within the charge to
10
corporation tax in accordance with section 11 of the
Taxes Act 1988.
      (2)
Where this paragraph applies, the transfer in the course of the
merger of rights or liabilities under a derivative contract shall be
disregarded except—
15
(a)
for the purpose of determining the debits or credits to be
brought into account in respect of exchange gains or losses
and identifying the company which is to bring them into
account, and
(b)
for the purpose of identifying the company in whose case a
20
debit or credit which does not relate to the transfer is to be
brought into account.
      (3)
Where this paragraph applies, the transferor and the transferee
companies of a right or liability under a derivative contract shall be
deemed, except for the purposes specified in sub-paragraph (2)(a)
25
and (b), to be the same company.
      (4)
Paragraph 30 shall apply, with any necessary modifications, in
relation to this paragraph as in relation to paragraph 28.
      (5)
Sub-paragraphs (2) and (3) shall apply in relation to a merger only
if—
30
(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 corporation tax, capital gains tax or income tax.
      (6)
But sub-paragraph (5) shall not have the effect of preventing sub-
35
paragraphs (2) and (3) from applying if before the merger Her
Majesty’s Revenue and Customs have on the application of the
merging companies notified them that Her Majesty’s Revenue and
Customs are satisfied that sub-paragraph (5) will not have that effect.
      (7)
For the purposes of this paragraph a company is resident in a
40
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 purposes of any double taxation
relief arrangements to which the State is a party, as resident
45
in a territory not within a member State.”
(2)
Subsection (1) shall have effect in relation to the formation of an SE which
occurs on or after 1st April 2005.