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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.

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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—

 
 

 
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