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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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ETMD: securities issued on a merger: main conditions

CG45719 explains how a charge could arise to shareholders or debenture holders of a transferor company in cases of a partial division of a business and how TCGA 1992 section 140DA can prevent this from happening. A similar situation could arise on certain mergers within section 140E. Section 140G will, where the required conditions are met, ensure that no charge will accrue to the shareholder or debenture holders of the transferor company at the time of the merger. To be within section 140G, the merger must

  • form a Societas Europaea (SE) or a European Cooperative Society (SCE), see CG45707 and CG45708 for a fuller explanation of these conditions
  • be a merger within the meaning of the ETMD, see CG45709 for a fuller explanation of the required conditions, and,
  • each of the merging companies must be resident in a member state but not all resident in the same member state and,
  • the merger must not be a scheme of reconstruction within Schedule 5AA; section 140G(2).

Where all the conditions are met then for the purposes of section 136 the transfer is treated as if it were a scheme of reconstruction. Provided the other conditions within section 136 are met this means that section 127 will have effect so that the shareholders or debenture holders in the transferor company or companies will be treated as not having made a disposal of their shares or debentures in those companies. It follows that no chargeable gain or allowable loss accrues to them at the time of the merger; section 140G(3).

Where section 136 applies by virtue of section 140G then the anti-avoidance rules in section 137 can have no application; section 140G(4). However section 140E(8) applies to section 140G thereby introducing an anti-avoidance rule to section 140G; section 140G(5). See CG45731.

Note: The application of Section 140G is dependent on the type of merger and when this took place.

Section 140G can apply to mergers to form a SE which take place on or after 1 April 2005.

Section 140G can apply to mergers to form a SE or SCE which take place on or after 18 August 2006 which are dependent on the changes introduced by SI 2007 no. 3186.

Section 140G can only apply to all other mergers which take place on or after 1 January 2007.