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HMRC internal manual

Capital Gains Manual

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ETMD: merger of a non - UK business: main conditions

TCGA 1992 section 140F provides for particular treatment where as part of a merger the transferor is a UK resident company and it transfers assets and liabilities relating to a business it carried on through a PE in another member state.

Similar to section 140C section 140F provides that a charge to tax may arise at the time of the transfer but the chargeable company must have the opportunity of having the benefit of notional double taxation relief. This differs from mergers within section 140E which provides that at the asset tier assets are transferred on a no gain no loss basis.

The types of mergers to which section 140F can apply are exactly the same as those for section 140E, section 140F(1). See CG45706+ for a fuller explanation on the different types of mergers.

Section 140F applies to mergers to form a SE which take place on or after 1 April 2005.

The changes introduced by SI 2007 no. 3186 are effective for mergers to form a SE or SCE which take place on or after 18 August 2006 and for all other mergers which take place on or after 1 January 2007.

The conditions which must apply to the merger before section 140F can have effect are;

  1. Each of the merging companies must be resident in a member state but not all resident in the same member state; section 140F(2)(a) & (b).
  2. A UK resident company transfers to a company in another member state all assets and liabilities relating to a business which it carried on through a permanent establishment in a different member state from the UK; section 140F(2)(c).
  3. That where there is a merger within section 140F(1)(a), or (b) or (c) the transferee company must issue shares or debentures to the shareholders or debenture holders of the transferor company; section 140F)(2)(e)(i). However if the transferee is the parent company of the transferor and as a result of UK company law or corresponding statute in other members states the parent is prevented from issuing its own shares to itself section 140F(2)(e)(ii) overrides the requirement within section 140F(2)(e)(i). See CG45704 for a fuller explanation.
Note as section 140F does not prevent there being a chargeable occasion there is no need to disapply sections 124 or 122. See CG45704 for a fuller explanation.
  1. Where there is a merger within section 140F(1)(d) the single new company must issue share or debentures to the shareholders or debenture holders of the transferor companies.
  2. For mergers, other than those to form a SE or an SCE, in which one or more companies transfer all their assets and liabilities to a single new or existing company, all the transferor companies must cease to exist without going into liquidation within the meaning of section 247 Insolvency Act 1986, section 140E(2)(e).