Taxation (International and Other Provisions) Bill

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Session 2009 - 10
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Taxation (International and Other Provisions) Bill

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 3 — Miscellaneous provisions
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European cross-border mergers
118
Introduction to section 119
(1)
Section 119 applies if each of conditions A to E is met and—
(a)
in the case of a merger within subsection (2)(a) or (b), condition F is met,
(b)
in the case of a merger within subsection (2)(c), conditions F and G are
5
met, and
(c)
in the case of a merger within subsection (2)(d), condition G is met.
(2)
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.
10
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, in accordance with Articles 2(1) and 19 of
Council Regulation (EC) No. 1435/2003 on the Statute for a European
15
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
20
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.
(3)
Condition B is that each merging company is resident in a member State.
(4)
Condition C is that the merging companies are not all resident in the same
State.
25
(5)
Condition D is that 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 (but see subsection (9)).
30
(6)
Condition E is that the transfer mentioned in subsection (5) includes—
(a)
the transfer of an asset or liability representing a loan relationship,
(b)
the transfer of rights and liabilities under a derivative contract, or
(c)
the transfer of intangible fixed assets—
(i)
that are chargeable intangible assets in relation to company A
35
immediately before the transfer, and
(ii)
in the case of one or more of which the proceeds of realisation
exceed the cost recognised for tax purposes.
(7)
Condition F is that—
(a)
the transfer of assets and liabilities to the transferee in the course of the
40
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)
paragraph (a) is not met in relation to the transfer of those assets and
liabilities only because, and only so far as, the transferee is prevented
45
from so issuing such shares or debentures by section 658 of the
Companies Act 2006 (general rule against limited company acquiring

Taxation (International and Other Provisions) Bill
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own shares) or by a corresponding provision of the law of another
member State preventing such an issue.
(8)
Condition G 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).
5
(9)
In the case of a merger within subsection (2)(a) or (b), in determining whether
section 119 applies in respect of such a transfer as is mentioned in subsection
(6)(c), condition D is regarded as met even if all liabilities relating to the
business which company A carried on are not transferred as mentioned in
subsection (5).
10
(10)
For the purposes of this section, 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
15
within a member State.
(11)
In this section—
“co-operative society” means a society registered under the Industrial and
Provident Societies Act 1965 or a similar society governed by the law of
a member State other than the United Kingdom,
20
“SE” and “SCE” have the same meaning as in CTA 2009 (see section 1319
of that Act),
“the transferee” means—
(a)
in relation to a merger within subsection (2)(a), the SE,
(b)
in relation to a merger within subsection (2)(b), the SCE, and
25
(c)
in relation to a merger within subsection (2)(c) or (d), the
company to which assets and liabilities are transferred, and
“transferor” means—
(a)
in relation to a merger within subsection (2)(a), a company
merging to form the SE,
30
(b)
in relation to a merger within subsection (2)(b), a co-operative
society merging to form the SCE, and
(c)
in relation to a merger within subsection (2)(c) or (d), a company
transferring all of its assets and liabilities.
119
Tax treated as chargeable in respect of transfer of loan relationship, derivative
35
contract or intangible fixed assets
(1)
If tax would have been chargeable under the law of one or more other member
States in respect of the transfer mentioned in section 118(6)(a), (b) or (c) but for
the Mergers Directive, this Part applies, and any double taxation arrangements
apply, as if that tax had been chargeable.
40
(2)
In calculating tax notionally chargeable under subsection (1) in respect of the
transfer mentioned in section 118(6)(a) or (b), it is to be assumed—
(a)
that, to the extent permitted by the law of the other member State,
losses arising on that transfer are set against gains arising on that
transfer, and
45
(b)
that any relief due to company A under that law is claimed.
(3)
Subsection (1) does not apply if—

Taxation (International and Other Provisions) Bill
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Chapter 3 — Miscellaneous provisions
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(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.
(4)
But subsection (3) does not prevent subsection (1) from applying if before the
5
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 subsection (3) will not have that effect.
10
(5)
Sections 427 and 428 of CTA 2009 (procedure and decisions on applications for
clearance) have effect in relation to subsection (4) as in relation to section 426(2)
of that Act, taking the references in section 428 to section 426(2)(b) as references
to subsection (4)(b) of this section.
(6)
In this section “company A”, “the merger” and “the merging companies” have
15
the same meaning as in section 118.
Transparent entities involved in cross-border transfers and mergers
120
Introduction to section 121
(1)
Section 121 applies if, as a result of—
(a)
a relevant loan relationship transaction,
20
(b)
a relevant derivative contracts transaction, or
(c)
a relevant intangible fixed assets transaction,

tax would have been chargeable under the law of a member State other than
the United Kingdom in respect of a relevant profit but for the Mergers
Directive.
25
(2)
In this section “relevant loan relationship transaction” means—
(a)
a transfer of a kind which meets condition A or B in section 421 of CTA
2009 or would meet one of those conditions if—
(i)
the business or part of the business transferred were carried on
by the transferor in the United Kingdom, and
30
(ii)
the condition in section 421(3)(c) or (4)(f) of that Act were met,

and in relation to which the transferor or transferee or one of the
transferees is a transparent entity, or
(b)
a merger of a kind mentioned in section 431(2) of that Act which
meets—
35
(i)
conditions B to D in section 431,
(ii)
in the case of a merger within section 431(3)(a), (b) or (c),
condition E in section 431, and
(iii)
in the case of a merger within section 431(3)(c) or (d), condition
F in section 431,
40

and in relation to which one or more of the merging companies is a
transparent entity.
(3)
In this section “relevant derivative contracts transaction” means—
(a)
a transfer of a kind which meets condition A or B in section 674 of CTA
2009 or would meet one of those conditions if—
45

Taxation (International and Other Provisions) Bill
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Chapter 3 — Miscellaneous provisions
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(i)
the business or part of the business transferred were carried on
by the transferor in the United Kingdom, and
(ii)
the condition in section 674(2)(c) or (3)(f) of that Act were met,

and in relation to which the transferor is a transparent entity, or
(b)
a merger of a kind mentioned in section 682(2) of that Act which
5
meets—
(i)
conditions B to D in section 682,
(ii)
in the case of a merger within section 682(2)(a), (b) or (c),
condition E in section 682, and
(iii)
in the case of a merger within section 682(2)(c) or (d), condition
10
F in section 682,

and in relation to which one or more of the merging companies is a
transparent entity.
(4)
In this section “relevant intangible fixed assets transaction” means—
(a)
a transfer—
15
(i)
which is of a kind which meets condition A or B in section 819
of CTA 2009, or would meet one of those conditions if the
business or part of the business transferred were carried on by
the transferor in the United Kingdom, and
(ii)
in relation to which the transferor or transferee or one of the
20
transferees is a transparent entity, or
(b)
a merger—
(i)
which is of a kind mentioned in section 821(2) of that Act,
(ii)
which meets conditions B and C in section 821,
(iii)
which, if it is a merger within section 821(2)(a), (b) or (c), meets
25
condition D in section 821,
(iv)
which, if it is a merger within section 821(2)(c) or (d), meets
condition E in section 821,
(v)
in the course of which no qualifying assets are transferred to
which section 818 of that Act (company reconstruction
30
involving transfer of business) applies, and
(vi)
in relation to which one or more of the merging companies is a
transparent entity.
(5)
In this section “relevant profit” means—
(a)
in the case of a transfer within subsection (2)(a), a profit accruing to a
35
transparent entity in respect of a loan relationship (or which would be
treated as accruing if it were not transparent) because of the transfer of
assets or liabilities representing a loan relationship by the transparent
entity to the transferee,
(b)
in the case of a merger within subsection (2)(b), a profit accruing to a
40
transparent entity in respect of a loan relationship (or which would be
treated as accruing if it were not transparent) because of the transfer of
assets or liabilities representing a loan relationship by the transparent
entity to another company in the course of the merger,
(c)
in the case of a transfer within subsection (3)(a), a profit accruing to a
45
transparent entity in respect of a derivative contract (or which would
be treated as accruing if it were not transparent) because of the transfer
of rights and liabilities under the derivative contract by the transparent
entity to the transferee,

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(d)
in the case of a merger within subsection (3)(b), a profit accruing to a
transparent entity in respect of a derivative contract (or which would
be treated as accruing if it were not transparent) because of the transfer
of rights and liabilities under the derivative contract by the transparent
entity to another company in the course of the merger,
5
(e)
in the case of a transfer within subsection (4)(a), a profit which would
be treated as accruing to a transparent entity in respect of an intangible
fixed asset, because of the transfer of intangible fixed assets by the
transparent entity, if it were not transparent, and
(f)
in the case of a merger within subsection (4)(b), a profit which would
10
be treated as accruing to a transparent entity in respect of an intangible
fixed asset, because of the transfer of intangible fixed assets by the
transparent entity in the course of the merger, if it were not transparent.
(6)
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
15
share capital.
121
Tax treated as chargeable in respect of relevant transactions
(1)
This Part applies, and any double taxation arrangements apply, as if the tax
that would have been chargeable as mentioned in section 120(1) had been
chargeable.
20
(2)
In calculating tax notionally chargeable under subsection (1), it is to be
assumed—
(a)
that, to the extent permitted by the law of the other member State
mentioned in section 120(1), losses arising on the relevant transfer are
set against profits arising on it, and
25
(b)
that any relief available under that law is claimed.
(3)
In this section “the relevant transfer” means—
(a)
the transfer of assets or liabilities mentioned in section 120(5)(a) or (b),
(b)
the transfer of rights and liabilities mentioned in section 120(5)(c) or (d),
or
30
(c)
the transfer of intangible fixed assets mentioned in section 120(5)(e) or
(f).
Cross-border transfers and mergers: chargeable gains
122
Tax treated as chargeable in respect of gains on transfer of non-UK business
(1)
Subsection (3) applies if—
35
(a)
section 140C or 140F of TCGA 1992 applies, and
(b)
gains accruing to company A on the transfer would have been
chargeable to tax under the law of the host State but for the Mergers
Directive.
(2)
In this section—
40
“company A”—
(a)
means the transferor within the meaning given by subsection
(1) or (1A) of section 140C of TCGA 1992 if that subsection
applies, and

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(b)
has the meaning given by section 140F(2) of TCGA 1992 if it
applies,
“the host State” means the member State (other than the United Kingdom)
mentioned, in whichever of the transfer subsections applies, as the
location in which company A carries on a business or part of a business,
5
“the transfer” means the transfer made by company A that is mentioned
in whichever of the transfer subsections applies, and
“the transfer subsections” means—
(a)
section 140C(1) of TCGA 1992 (transfer, of non-UK business or
part, by UK resident “company” to one resident in another
10
member State),
(b)
section 140C(1A) of TCGA 1992 (transfer, of part of non-UK
business, by UK resident “company” to transferees including a
“company” resident in another member State), and
(c)
section 140F(2) of TCGA 1992 (transfer of assets and liabilities of
15
non-UK business, by UK resident “company” or co-operative
society to one resident in another member State, as part of
genuine merger of two or more “companies” or societies).
(3)
This Part applies, and any double taxation arrangements apply, as if the tax
mentioned in subsection (4) were tax payable under the law of the host State.
20
(4)
That tax is the tax, calculated on the required basis, which but for the Mergers
Directive would have been payable under the law of the host State in respect
of the gains.
(5)
For the purposes of subsection (4) “the required basis” is that—
(a)
so far as permitted under the law of the host State, any losses arising on
25
the transfer are set against any gains arising on the transfer, and
(b)
any relief available to company A under the law of the host State has
been duly claimed.
Interpretation of sections related to the Mergers Directive
123
Interpretation of sections 116 to 122
30
In sections 116 to 122 and this section—
“company” means any entity listed as a company in the Annex to the
Mergers Directive,
“derivative contract” has the same meaning as in Part 7 of CTA 2009,
“intangible fixed assets” and “chargeable intangible assets”, in relation to
35
any person, have the same meaning as in Part 8 of CTA 2009,
“loan relationship” has the same meaning as in Part 5 of CTA 2009,
“the Mergers Directive” means Council Directive 90/434/EEC of 23 July
1990 on the common system of taxation applicable to mergers,
divisions, partial divisions, transfers of assets and exchanges of shares
40
concerning companies of different member States and to the transfer of
the registered office, of an SE or SCE, between member States,
“proceeds of realisation”, in relation to intangible fixed assets, has the
meaning given in section 739 of CTA 2009, and
“recognised for tax purposes” has the same meaning as in Part 8 of CTA
45
2009.