Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 13 — European cross-border transfers of business
198

424
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
5
(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
10
(c)
either—
(i)
section 422 or 423 applies as a result of condition B in section 421
being met in relation to the transfer in the course of which the
reorganisation occurs or
(ii)
condition C in section 421 is met in relation to that transfer.
15
(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
20
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
25
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
30
“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 425 (original holder using fair value accounting), and
(b)
section 429 (disapplication of Chapter where transparent entities
35
involved).
425
Original holder using fair value accounting
(1)
This section applies instead of section 424 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
40
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.
45

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 13 — European cross-border transfers of business
199

(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
5
disposal amount.
(4)
Subsections (4) and (5) of section 423 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—
10
“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 424.
15
(6)
This section is subject to section 429 (disapplication of Chapter where
transparent entities involved).
Exception for tax avoidance cases
426
Tax avoidance etc
(1)
This Chapter does not apply in relation to the transfer of business if—
20
(a)
the transfer of business is not effected for genuine commercial reasons,
or
(b)
the transfer of business 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.
25
(2)
But subsection (1) does not prevent this Chapter from applying if before the
transfer of business—
(a)
the companies mentioned in section 421(3)(a), (4)(a) or (5)(a) have
applied to the Commissioners for Her Majesty’s Revenue and Customs,
and
30
(b)
the Commissioners have notified them that they are satisfied that
subsection will not have that effect.
427
Procedure on application for clearance
(1)
This section applies in relation to an application under section 426(2).
(2)
The application must be in writing and must contain particulars of the
35
operations which are to be effected.
(3)
The Commissioners for Her Majesty’s Revenue and Customs may by notice
require the applicant to provide further particulars for the purpose of enabling
them to make their decision.
(4)
Such a notice may only be given within 30 days of the receipt of the application
40
or of any further particulars previously required under subsection (3).

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 13 — European cross-border transfers of business
200

(5)
If such a notice is not complied with within 30 days or such longer period as
the Commissioners for Her Majesty’s Revenue and Customs may allow, they
need not proceed further on the application.
428
Decision on application for clearance
(1)
The Commissioners for Her Majesty’s Revenue and Customs must notify their
5
decision on an application under section 426(2) to the applicant—
(a)
within 30 days of receiving the application, or
(b)
if they give a notice under section 427(3), within 30 days of the notice
being complied with.
(2)
If the Commissioners for Her Majesty’s Revenue and Customs—
10
(a)
notify the applicant that they are not satisfied as mentioned in section
426(2)(b), or
(b)
do not notify their decision to the applicant within the time required by
subsection (1),

the applicant may within 30 days of the notification or of that time require
15
them to transmit the application to the tribunal, together with any notice given
and further particulars provided under section 427(3).
(3)
In that case any notification by the tribunal has effect for the purposes of
section 426(2)(b) as if it were a notification by the Commissioners for Her
Majesty’s Revenue and Customs.
20
(4)
If any particulars provided under section 427 do not fully and accurately
disclose all facts and considerations material for the decision—
(a)
of the Commissioners for Her Majesty’s Revenue and Customs, or
(b)
of the tribunal,

any resulting notification by the Commissioners for Her Majesty’s Revenue
25
and Customs or the tribunal is void.
Transparent entities
429
Disapplication of Chapter where transparent entities involved
(1)
This Chapter does not apply in relation to the transfer of business if the
transferor is a transparent entity.
30
(2)
If any transferee is a transparent entity, sections 424 and 425 (reorganisations
involving loan relationships) do not apply.
(3)
In this section “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.
35
(4)
For the meaning of “resident in a member State”, see section 430.
Interpretation
430
Interpretation
(1)
In this Chapter “company” means any entity listed as a company in the Annex
to the Mergers Directive.
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Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 14 — European cross-border mergers
201

(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
5
within a member State.
Chapter 14
European cross-border mergers
Introduction
431
Introduction to Chapter
10
(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,
15

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
20
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.
25
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
30
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
35
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.
40
(6)
Condition D is that immediately after the merger the transferee is within the
charge to corporation tax.
(7)
Condition E is that—

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 14 — European cross-border mergers
202

(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
5
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
10
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
15
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.
20
(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
25
“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
30
(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,
35
(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
40
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.

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 14 — European cross-border mergers
203

(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.
5
(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
10
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
15
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
20
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.
25
(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.
30
(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
35
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)—
40
(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),

Corporation Tax Bill
Part 5 — Loan Relationships
Chapter 14 — European cross-border mergers
204

(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
5
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.
10
(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—
15
“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
20
(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
25
(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
30
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
35
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
40
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.
45
(5)
In this section—