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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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European Union Directives and Regulations

This section of the manual provides guidance on the legislative changes relevant to the Taxation of the Chargeable Gains Act 1992 (TCGA 1992) to accommodate the requirements set out in the

  • European Tax Merger Directive (ETMD),
  • European Council Regulations on the statute for a European Company, a Societas Europaea (SE) and,
  • European Council Regulations for a European Cooperative Society (SCE).

The ETMD and Regulations have an impact on other parts of the Taxes Acts and guidance for these can be found at

  • Loan Relationships: Corporate Finance Manual - CFM34160+
  • Derivative Contracts: Corporate Finance Manual - CFM53120
  • Intangible fixed assets: Corporate Intangibles Research & Development Manual -CIRD42030+
  • Capital Allowances: Capital Allowances Manual - CA15560+.

European Tax Merger Directive (ETMD)

The ETMD was introduced by a European Council Directive, 90/434/EEC, on 23 July 1990. In response sections 140A-D and Case 3 of section 135(2) were included in TCGA 1992 by sections 45-49 F(No2)A 1992 and are deemed always to have had effect. Note that the changes made to section 140A in 2007 are only effective for transfers that took place on or after 1 January 2007.

In 2005 the European Council approved changes to the ETMD and they are effective for transactions that take place on or after 1 January 2007 except where they involve a SE or SCE. The effective date involving these concerns is 18 August 2006. SI 2007 No. 3186 provides the necessary changes and additions were made to TCGA 1992 to reflect the amended ETMD. A further directive was issued in 2009, 2009/133/EEC consolidating the two directives. Regulations, SI 2011/1431, were laid before Parliament on 8 June 2011 to change the references to the directives within the Taxes Acts to the codified version and are effective from 1 July 2011.

The principal changes made in the 2005 directive were

  • ‘Transfer of a business’ within section 140A could now include a partial division.
  • Mergers of an existing company or companies into a single existing company or a new company were now included in sections 140E and 140F
  • Rules for dealing with transfers, mergers and exchanges involving a transparent entity were introduced.

European Company Statute

The European Company Statute was introduced by European Council Regulation (EC) 2157/2001 on 1 January 2000 providing regulations for a European company. It is concerned with company law and allows the setting up of a European company known by the Latin term “Societae Europaea” (SE) as an entity with a presence in more than one EU member state. The UK’s company law was aligned with this European Company Statute by means of regulations made by the (then) Department of Trade and Industry.

The UK’s tax rules were made consistent with the EU Council Regulation by section 51(1) F(No 2)A 2005. Within TCGA 1992 this created sections 140E and F. Those sections were expanded in 2007 to accommodate the changes in the ETMD and the introduction of the European Cooperative Society.

European Cooperative Society

The European Cooperative Society Statute was introduced by European Council Regulation (EC) 1435/2003 on 22 July 2003. It is concerned with company law relating to cooperative societies and changes were made to UK company law by way of regulation to accommodate such entities.

Legislation was introduced by SI 2007 No. 3186 to give effect to the regulation in terms of UK tax rules.