Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

International Manual

Controlled Foreign Companies: The CFC Charge Gateway Chapter 9 - Exemptions for profits from Qualifying Loan Relationships: Full Exemption - Qualifying Resources: What are Qualifying Resources?: Funds derived from shares: Share for share exchanges

A group may make an acquisition of another group by offering newly issued shares to the shareholders of the ‘target’ group. An acquisition effected in this way is referred to as a share for share exchange.

Resources obtained from a shareholding (e.g. by selling the share or from a distribution) are qualifying if the sum received represents an amount obtained by the group in a share for share exchange. For example, the following will (subject to the conditions on share for share exchanges being met) be qualifying resources:

  • a distribution of pre-acquisition profits;
  • a repayment of share capital that existed when the acquisition was made.

Conditions for share for share exchanges to create qualifying resources

The conditions to be satisfied so that funds derived from share for share exchanges can be treated as qualifying resources are provided by TIOPA10/Part 9A/S371IC. The original shareholders must be given shares in the acquiring group in return for their shares in the target group. The shares must be newly issued by a company in the group that is not the 51% subsidiary of any other company. Usually the only company to qualify in this way is the group’s ultimate parent company.

The proportion of resources obtained from a share for share exchange that are qualifying resources are reduced if the acquisition was partly for shares and partly for cash, or if an ‘extraordinary distribution’ was paid to shareholders in connection with the acquisition. In such a case the proportion of the resources from the share for exchange that are qualifying resources is given by the formula:

  100% x B  
     
  A + B  

Where:

  • A = Share value,
  • B = dividend and/or cash

Use this link to view part one of the example

Use this link to view part two of the example

Use this link to view part three of the example

Use this link to view part four of the example

Use this link to view part five of the example

Use this link to view second example

Use this link to view third example