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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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ETMD: merger to form a Societas Europaea or SE

Under the regulations a European Company, a Societas Europaea or SE can be formed in a number of ways such as by transformation of an existing company or by a merger. A transformation would involve a company such as a UK plc changing its status to a SE. A merger as the name suggests involves more than one participant and involves more than one company merging to form a SE. The initial requirement is that the merger must be in accordance with articles 2(1) and 17(2)(a) or (b) of Council Regulation (EC) 2157/2001. The following sub paragraphs explain the basic requirements within the directive. The necessary provisions have been included in the changes made to the relevant sections of the TCGA.

Article 2(1) provides that a public limited liability company such as one of those referred to in annex 1 of the Regulation (that is to say one formed under the law of a member state with registered offices and head offices within the community) may form a SE by means of a merger provided that at least two of them are governed by the laws of different member states. In the annex the only UK companies which are listed are public limited liability companies such as public companies limited by shares and public companies limited by guarantee having share capital.

Article 17 provides that a SE may be formed by means of a merger in accordance with article 2(1). Under Article 17(2)(a) the procedure for such a merger must be in accordance with article 3(1) of the Third Council Directive (78/855/EEC) which involves a ‘merger by acquisition’, ie. one company acquires another. Article 17(2)(b) provides for the procedure within article 4(1) of the Third Council Directive to apply and this involves a ‘merger by formation of a new company’, ie. two companies transfer their assets etc to a new company.. The procedures within articles 3(1) and 4(1) that are considered appropriate to ensure that the UK complies with the capital gains aspects relating to the regulation are catered for by TCGA 1992 sections 140E(1)(a), (2)(d) & (2)(e).

Note that section 140E can only apply to mergers to form a SE which take place on or after 1 January 2005 but the changes made to section 140E by SI 2007 no. 3186 are only effective for mergers to form SEs which take place on or after 18 August 2006.