The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007

(85A) (1) This paragraph applies on a merger which satisfies the conditions specified in sub-paragraph (2), where— (a) an SE is formed by the merger of two or more companies in accordance with Articles 2(1) and 17(2)(a) or (b) of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea), (b) an SCE is formed by the merger of two or more cooperative societies, at least one of which is a society registered under the Industrial and Provident Societies Act 1965 , in accordance with Articles 2(1) and 19 of Council Regulation (EC) 1435/ 2003 on the Statute for a European Cooperative Society (SCE), (c) the merger is effected by the transfer by one or more companies of all their assets and liabilities to a single existing company, or (d) the merger is effected by the transfer by two or more companies of all their assets and liabilities to a single new company (other than an SE or an SCE) in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures. (2) The conditions mentioned in sub-paragraph (1) are that— (a) each of the merging companies is resident in a member State, (b) the merging companies are not all resident in the same State, (c) paragraph 84 does not apply to any qualifying transferred assets, (d) in the case of a merger to which sub-paragraph (1)(a), (b) or (c) applies, either— (i) the transfer of assets and liabilities is made in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures, or (ii) sub-paragraph (i) is not satisfied in relation to the transfer by reason only, and to the extent only, that the transferee is prevented from complying with that sub-paragraph by section 658 of the Companies Act 2006 (rule against limited company acquiring own shares) or a corresponding provision of the law of another member State preventing the issue of shares or debentures to itself, and (e) in the case of a merger to which sub-paragraph (1)(c) or (d) applies, in the course of the merger each of the companies transferring assets and liabilities ceases to exist without being in liquidation (within the meaning given by section 247 of the Insolvency Act 1986 ). (3) Where this paragraph applies, a transfer of qualifying transferred assets is treated for the purposes of this Schedule as tax-neutral (see paragraph 140). (4) For the purposes of sub-paragraphs (2) and (3) an asset is a qualifying transferred asset if— (a) it is transferred as part of the process of the merger, (b) it is a chargeable intangible asset in relation to the transferor immediately before the transfer, and (c) it is a chargeable intangible asset in relation to the transferee immediately after the transfer. (5) For the purposes of this paragraph— (a) “cooperative society” means a society registered under the Industrial and Provident Societies Act 1965 or a similar society governed by the law of a member State other than the United Kingdom, (b) “transferor” means— (i) in relation to a merger to which sub-paragraph (1)(a) applies, each company merging to form the SE, (ii) in relation to a merger to which sub-paragraph (1)(b) applies, each cooperative society merging to form the SCE, and (iii) in relation to a merger to which sub-paragraph (1)(c) or (d) applies, each company transferring all of its assets and liabilities, (c) “transferee” means— (i) in relation to a merger to which sub-paragraph (1)(a) applies, the SE, (ii) in relation to a merger to which sub-paragraph (1)(b) applies, the SCE, and (iii) in relation to a merger to which sub-paragraph (1)(c) or (d) applies, the company to which assets and liabilities are transferred, (d) references, other than references in sub-paragraph (1)(a), (b) or (d), to a company include references to a cooperative society, and (e) a company is resident in a member State if— (i) it is within a charge to tax under the law of the State as being resident for that purpose, and (ii) it is not regarded, for the purposes of any double taxation relief arrangements to which the State is a party, as resident in a territory not within a member State. (6) If sub-paragraph (2)(d)(ii) applies in relation to a transfer of assets and liabilities on a merger (in whole or in part), sections 24 and 122 of the Taxation of Chargeable Gains Act 1992 do not apply. (7) This paragraph applies only if the merger— (a) is effected for bona fide commercial reasons, and (b) does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax. (8) The requirements of sub-paragraph (7) are treated as met where, before the transfer, the Commissioners for Her Majesty's Revenue and Customs have, on the application of the transferor, notified the transferor that they are satisfied that the merger will be effected for bona fide commercial reasons and will not form part of any such scheme or arrangements as are mentioned in sub-paragraph (7)(b). (9) An application under sub-paragraph (8) must be made in accordance with paragraph 88.

12

For paragraph 87A of Schedule 29 (SEs: transfer of non-UK trade) substitute—

(87A) (1) This paragraph applies on a merger which satisfies the conditions specified in sub-paragraph (2), where— (a) an SE is formed by the merger of two or more companies in accordance with Articles 2(1) and 17(2)(a) or (b) of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea), (b) an SCE is formed by the merger of two or more cooperative societies, at least one of which is a society registered under the Industrial and Provident Societies Act 1965, in accordance with Articles 2(1) and 19 of Council Regulation (EC) 1435/ 2003 on the Statute for a European Cooperative Society (SCE), (c) the merger is effected by the transfer by one or more companies of all their assets and liabilities to a single existing company, or (d) the merger is effected by the transfer by two or more companies of all their assets and liabilities to a single new company (other than an SE or an SCE) in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures. (2) The conditions mentioned in sub-paragraph (1) are that— (a) each merging company is resident in a member State, (b) the merging companies are not all resident in the same State, (c) in the course of the merger a company resident in the United Kingdom (“company A”) transfers to a company resident in another member State (“company B”) the whole or part of a business that, immediately before the transfer, company A carried on in a member State other than the United Kingdom through a permanent establishment, (d) the transfer includes the whole of the assets of company A used for the purposes of the business or part, (e) the transfer includes intangible fixed assets— (i) that are chargeable intangible assets in relation to company A immediately before the transfer, and (ii) in the case of one or more of which the proceeds of realisation exceed the cost recognised for tax purposes, (f) no claim is made under paragraph 86 in relation to those assets, and (g) in the case of a merger to which sub-paragraph (1)(a), (b) or (c) applies, either— (i) the transfer of assets and liabilities is made in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures, or (ii) sub-paragraph (i) is not satisfied in relation to the transfer by reason only, and to the extent only, that the transferee is prevented from complying with that sub-paragraph by section 658 of the Companies Act 2006 (rule against limited company acquiring own shares) or a corresponding provision of the law of another member State preventing the issue of shares or debentures to itself. (3) Where tax would, but for the Mergers Directive, have been chargeable in the member State in which the permanent establishment is located, Part 18 of the Taxes Act 1988 (double taxation relief), including any arrangements having effect by virtue of section 788 (double taxation agreements), shall have effect as if the amount of tax that would, but for the Mergers Directive, have been charged in respect of the transfer of the chargeable intangible assets, had actually been charged. (4) In this paragraph “the Mergers Directive” has the same meaning as in paragraph 87. (5) For the purposes of this paragraph— (a) “cooperative society” means a society registered under the Industrial and Provident Societies Act 1965 or a similar society governed by the law of a member State other than the United Kingdom, (b) “transferor” means— (i) in relation to a merger to which sub-paragraph (1)(a) applies, each company merging to form the SE, (ii) in relation to a merger to which sub-paragraph (1)(b) applies, each cooperative society merging to form the SCE, and (iii) in relation to a merger to which sub-paragraph (1)(c) or (d) applies, each company transferring all of its assets and liabilities, (c) “transferee” means— (i) in relation to a merger to which sub-paragraph (1)(a) applies, the SE, (ii) in relation to a merger to which sub-paragraph (1)(b) applies, the SCE, and (iii) in relation to a merger to which sub-paragraph (1)(c) or (d) applies, the company to which assets and liabilities are transferred, (d) references, other than references in sub-paragraph (1), to a company include references to a cooperative society, and (e) a company is resident in a member State if— (i) it is within a charge to tax under the law of the State as being resident for that purpose, and (ii) it is not regarded, for the purposes of any double taxation relief arrangements to which the State is a party, as resident in a territory not within a member State. (6) This paragraph applies only if a merger— (a) is effected for bona fide commercial reasons, and (b) does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax. (7) The requirements of sub-paragraph (6) are treated as met where, before the transfer, the Commissioners for Her Majesty's Revenue and Customs have, on the application of the transferor, notified the transferor that they are satisfied that the merger will be effected for bona fide commercial reasons and will not form part of any such scheme or arrangements as are mentioned in sub-paragraph (6)(b). (8) An application under sub-paragraph (7) must be made in accordance with paragraph 88.

13

In paragraph 88(1) and (5) of Schedule 29 (procedure on application for clearance) for “85A(5), 87A(6)” substitute “ 85A(7), 87A(7) ”.

PART 4 — AMENDMENTS OF CAA 2001, FA 1988 AND ICTA

Capital allowances

14

For section 561A of CAA 2001 (transfer during formation of SE by merger) substitute—

(561A) (1) This section applies to the transfer of a qualifying asset as part of the process of a merger to which section 140E of TCGA 1992 (mergers: assets within UK tax charge) applies (or would apply but for section 140E(2)(c)). (2) Where this section applies to a transfer— (a) the transfer does not give rise to any allowance or charge under this Act, (b) anything done to or by the transferor in relation to assets transferred is to be treated after the transfer as having been done to or by the transferee (with any necessary apportionment of expenditure being made in a reasonable manner), and (c) section 343 of ICTA (company reconstruction without change of ownership) shall not apply. (3) For the purposes of subsection (1) an asset is a “qualifying asset” if— (a) it is transferred to the transferee as part of the process of the merger, and (b) subsections (4) and (5) are satisfied in respect of it. (4) This subsection is satisfied in respect of an asset if— (a) the transferor is resident in the United Kingdom at the time of the transfer, or (b) the asset is an asset of a permanent establishment in the United Kingdom of the transferor. (5) This subsection is satisfied in respect of an asset if— (a) the transferee is resident in the United Kingdom at the time of the transfer, or (b) the asset is an asset of a permanent establishment of the transferee in the United Kingdom immediately following the transfer.

Residence of SCE

15

• (1) Section 66A of FA 1988 (residence of SE) is amended as follows.

• (2) For subsection (1) substitute—

(1) This section applies in relation to— (a) an SE which transfers its registered office to the United Kingdom (in accordance with Article 8 of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea)), and (b) an SCE which transfers its registered office to the United Kingdom (in accordance with Article 7 of Council Regulation (EC) 1435/2003 on the Statute for a European Cooperative Society (SCE)).

• (3) In subsections (2) and (3) after “SE” insert “ or SCE ”.

• (4) The heading accordingly becomes “ Residence of SE or SCE ”.

Tax treatment of SCE

16

In section 486(12) (industrial and provident societies and co-operative associations) of ICTA for the definition of “registered industrial and provident society” substitute—

“registered industrial and provident society” means— 1. a society registered or deemed to be registered under the Industrial and Provident Societies Act 1965 or under the Industrial and Provident Societies Act (Northern Ireland) 1969 , or 2. an SCE formed in accordance with Council Regulation (EC) 1435/2003 on the Statute for a European Co-Operative Society ;

SCHEDULE 3 — MERGERS, &C.: TREATMENT OF TRANSPARENT ENTITIES

PART 1 — AMENDMENT OF TCGA 1992

Chargeable gains

1

After section 140G of TCGA 1992 (inserted by paragraph 2 of Schedule 2) insert—

(140H) (1) This section applies if— (a) a company (“company B”) issues shares or debentures to a person in exchange for shares in or debentures of another company (“company A”), (b) the exchange falls within one of the cases specified in section 135(2) , and (c) either company B or company A or both is a transparent entity. (2) Where this section applies— (a) “company” in section 135 shall be treated as meaning an entity listed in the Annex to the Mergers Directive, and (b) section 135(3) does not apply. (3) If, as a result of an exchange in relation to which this section applies, a gain accruing to a person holding shares in or debentures of company A on the exchange would, but for the Mergers Directive, have been chargeable to tax under the law of a member State other than the United Kingdom, Part 18 of the Taxes Act (double taxation relief), including any arrangements having effect by virtue of section 788 of that Act (bilateral relief), shall apply as if that tax, calculated in accordance with subsection (4), had been chargeable. (4) Tax is calculated in accordance with this subsection if— (a) so far as permitted under the law of the relevant member State, losses arising on the exchange are set against gains arising on the exchange, and (b) any relief available to company A under that law has been claimed. (140I) (1) This section applies in relation to a transfer of a business, or part of a business, where— (a) the transfer is of a kind to which section 140A(1) or 140A(1A) applies (or to which either of those provisions would apply if the business, or the part of the business, transferred were carried on by the transferor in the United Kingdom and the condition mentioned in section 140A(1)(e) were satisfied in relation to the transferee, or each of the transferees), and (b) either the transferor or the transferee, or one of the transferees, is a transparent entity. (2) Where this section applies— (a) if the transferor is a transparent entity, sections 140A and 140DA do not apply in relation to the transfer; (b) if a transferee is a transparent entity, section 140DA does not apply in relation to the transfer to it. (3) If, as a result of a transfer in relation to which this section applies, a transfer gain would, but for the Mergers Directive, have been chargeable to tax under the law of a member State other than the United Kingdom, Part 18 of the Taxes Act (double taxation relief), including any arrangements having effect by virtue of section 788 of that Act (bilateral relief), shall apply as if that tax, calculated in accordance with subsection (5), had been chargeable. (4) In subsection (3) “transfer gain” means a gain accruing to a transparent entity (or which would be treated as accruing to that entity were it not transparent) by reason of the transfer of assets by the transparent entity to the transferee. (5) Tax is calculated in accordance with this subsection if— (a) so far as permitted under the law of the relevant member State, losses arising on the transfer are set against gains arising on the transfer, and (b) any relief available under that law has been claimed. (140J) (1) This section applies in relation to a merger if— (a) the merger is of a kind to which section 140E(1) applies, (b) the conditions in section 140E(2) are satisfied in relation to the merger, and (c) one or more of the merging companies is a transparent entity. (2) Where this section applies— (a) if the assets and liabilities of a transparent entity are transferred to another company by reason of the merger, sections 140E and 140G shall not apply; (b) if the assets and liabilities of one or more other companies are transferred to a transparent entity by reason of the merger section 140G shall not apply. (3) If, as a result of a merger in relation to which this section applies, a merger gain would, but for the Mergers Directive, have been chargeable to tax under the law of a member State other than the United Kingdom, Part 18 of the Taxes Act (double taxation relief), including any arrangements having effect by virtue of section 788 of that Act (bilateral relief) shall apply as if that tax, calculated in accordance with subsection (5), had been chargeable. (4) In subsection (3) “merger gain” means a gain accruing to a transparent entity (or which would be treated as accruing to that entity were it not transparent) by reason of the transfer of assets by the transparent entity to another company on the merger. (5) Tax is calculated in accordance with this subsection if— (a) so far as permitted under the law of the relevant member State, losses arising on the merger are set against gains arising on the merger, and (b) any relief available under that law has been claimed. (140K) (1) This section applies if— (a) a transparent entity (“company A”) is a transferee for the purposes of section 140A(1A) or 140E, (b) a person (“X”) with an interest in company A was or is also a shareholder or debenture holder of a company (“company B”), (c) X became entitled to an interest, or an increased interest, in company A in exchange for a disposal of shares in, or debentures of, company B on a merger to which section 140E applied or on a transfer to which section 140A(1A) applied, (d) a chargeable gain accrued to X on the disposal of shares in or debentures of company B, (e) in calculating the gain on the shares or debentures account was taken of the value of an asset of company B, and (f) X makes a disposal of his interest in the asset. (2) In computing the gain accruing to X on a disposal to which subsection (1)(f) applies, the sum allowable as a deduction in accordance with section 38(1)(a) in relation to the interest, or the proportion of the interest, which X acquired on the merger or transfer shall be the value taken into account in computing the gain on the disposal of his shares in, or debentures of, company B. (3) In this section a reference to an interest in company A includes— (a) an interest in the assets of company A, (b) shares in company A, and (c) debentures of company A. (140L) (1) In sections 140A to 140K, unless the contrary intention appears— (a) “the Mergers Directive” means Council Directive 90/434/EEC of 23rd July 1990 on mergers, transfers &c., (b) “company” means an entity listed as a company in the Annex to the Mergers Directive, and (c) “transparent entity” means an entity which is resident in a member State other than the United Kingdom and is listed as a company in the Annex to the Mergers Directive, but— (i) does not have an ordinary share capital (within the meaning given by section 832 of the Taxes Act), and (ii) if it were resident in the United Kingdom, would not be capable of being a company within the meaning given by the Companies Act 2006. (2) For the purposes of those sections and subsection (1) above, a company is resident in a member State if— (a) it is within a charge to tax under the law of the State as being resident for that purpose, and (b) it is not regarded, for the purpose of any double taxation relief arrangements to which the State is a party, as resident in a territory not within a member State.

PART 2 — AMENDMENT OF FA 1996

Loan relationships

2

After paragraph 12G of Schedule 9 to FA 1996 (European cross-border mergers) (inserted by paragraph 16 of Schedule 1) insert—

(12H) (1) This paragraph applies in relation to a transfer of a business, or a part of a business, where— (a) the transfer is of a kind to which paragraph 12D(1) or (2) applies (or to which either of those provisions would apply if the business, or the part of the business, transferred were carried on by the transferor in the United Kingdom and one of the conditions mentioned in paragraph 12D(1)(d) were satisfied in relation to the transferee, or each of the transferees), and (b) either the transferor or the transferee, or one of the transferees, is a transparent entity. (2) Where this paragraph applies— (a) if the transferor is a transparent entity, paragraphs 12D(3) and 12G(6) do not apply in relation to the transfer; (b) if a transferee is a transparent entity, paragraph 12G(6) does not apply in relation to the transfer to it. (3) If, as a result of a transfer to which this paragraph applies, a transfer profit would, but for the Mergers Directive, have been chargeable to tax under the law of a member State other than the United Kingdom, Part 18 of the Taxes Act 1988 (double taxation relief), including any arrangements having effect by virtue of section 788 of that Act (bilateral relief), shall apply as if that tax, calculated in accordance with sub-paragraph (5), had been chargeable. (4) In sub-paragraph (3) “transfer profit” means a profit accruing to a transparent entity in respect of a loan relationship (or which would be treated as accruing to that entity were it not transparent) by reason of a transfer of assets by the transparent entity to the transferee. (5) Tax is calculated in accordance with this subsection if— (a) so far as permitted under the law of the relevant member State, losses arising on the transfer are set against profits arising on the transfer, and (b) any relief available under that law has been claimed. (12I) (1) This paragraph applies in relation to a merger if— (a) the merger is of a kind to which paragraph 12B(1) applies, (b) the conditions in paragraph 12B(2) are satisfied in relation to the merger, and (c) one or more of the merging companies is a transparent entity. (2) Where this paragraph applies— (a) if the assets and liabilities of a transparent entity are transferred to another company by reason of the merger, paragraphs 12B(3) and 12G(6) shall not apply; (b) if the assets and liabilities of one or more other companies are transferred to a transparent entity by reason of the merger, paragraph 12G(6) shall not apply in relation to shares or debentures issued by the transparent entity. (3) If, as a result of a merger in relation to which this paragraph applies, a merger profit would, but for the Mergers Directive, have been chargeable to tax under the law of a member State other than the United Kingdom, Part 18 of the Taxes Act 1988 (double taxation relief), including any arrangements having effect by virtue of section 788 of that Act (bilateral relief), shall apply as if that tax, calculated in accordance with sub-paragraph (5), had been chargeable. (4) In sub-paragraph (3) “merger profit” means a profit in respect of a loan relationship accruing to a transparent entity (or which would be treated as accruing to that entity were it not transparent) by reason of the transfer of assets by the transparent entity to another company on the merger. (5) Tax is calculated in accordance with this sub-paragraph if— (a) so far as is permitted under the law of the relevant member State, losses arising on the transfer are set against profits arising on the transfer, and (b) any relief available under that law has been claimed. (12J) (1) In paragraphs 12B to 12I, unless the contrary intention appears— (a) “the Mergers Directive” means Council Directive 90/434/ EEC of 23rd July 1990 on mergers, transfers &c., (b) “company” (except in paragraph 12B) means an entity listed as a company in the Annex to the Mergers Directive, and (c) “transparent entity” means an entity which is resident in a member State other than the United Kingdom and is listed as a company in the Annex to the Mergers Directive, but which does not have an ordinary share capital (within the meaning given by section 832 of the Taxes Act). (2) For the purposes of those paragraphs and sub-paragraph (1) above, a company is resident in a member State if— (a) it is within a charge to tax under the law of the State as being resident for that purpose, and (b) it is not regarded, for the purpose of any double taxation relief arrangements to which the State is a party, as resident in a territory not within a member State.

PART 3 — AMENDMENTS OF FA 2002

Derivative contracts

3

FA 2002 is amended as follows.

4

After paragraph 30F of Schedule 26 (European cross-border mergers) (inserted by paragraph 19 of Schedule 1) insert—

(30G) (1) This paragraph applies in relation to a transfer of a business, or a part of a business, where— (a) the transfer is of a kind to which paragraph 30D(1) or (2) applies (or to which either of those provisions would apply if the business, or the part of the business, transferred were carried on by the transferor in the United Kingdom and one of the conditions mentioned in paragraph 30D(1)d) were satisfied in relation to the transferee, or each of the transferees), and (b) the transferor is a transparent entity. (2) Where this paragraph applies paragraph 30D(3) does not apply in relation to the transfer. (3) If, as a result of a transfer to which this paragraph applies, a transfer profit would, but for the Mergers Directive, have been chargeable to tax under the law of a member State other than the United Kingdom, Part 18 of the Taxes Act 1988 (double taxation relief), including any arrangements having effect by virtue of section 788 of that Act (bilateral relief), shall apply as if that tax, calculated in accordance with sub-paragraph (5), had been chargeable. (4) In sub-paragraph (3) “transfer profit” means a profit accruing to a transparent entity in respect of a derivative contract (or which would be treated as accruing to that entity were it not transparent) by reason of the transfer of assets by the transparent entity to the transferee. (5) Tax is calculated in accordance with this sub-paragraph if— (a) so far as permitted under the law of the relevant member State, losses arising on the transfer are set against profits arising on the transfer, and (b) any relief available under that law has been claimed. (30H) (1) This paragraph applies in relation to a merger if— (a) the merger is of a kind to which paragraph 30B(1) applies, (b) the conditions in paragraph 30B(2) are satisfied in relation to the merger, and (c) one or more of the merging companies is a transparent entity. (2) Where this paragraph applies, if the assets and liabilities of a transparent entity are transferred to another company by reason of the merger, paragraph 30B(3) shall not apply. (3) If, as a result of a merger in relation to which this paragraph applies, a merger profit would, but for the Mergers Directive, have been chargeable to tax under the law of a member State other than the United Kingdom, Part 18 of the Taxes Act 1988 (double taxation relief), including any arrangements having effect by virtue of section 788 of that Act (bilateral relief), shall apply as if that tax, calculated in accordance with sub-paragraph (5), had been chargeable. (4) In sub-paragraph (3) “merger profit” means a profit in respect of a derivative contract accruing to a transparent entity (or which would be treated as accruing to that entity were it not transparent) by reason of the transfer of assets by the transparent entity to another company on the merger. (5) Tax is calculated in accordance with this sub-paragraph if— (a) so far as is permitted under the law of the relevant member State, losses arising on the transfer are set against profits arising on the transfer, and (b) any relief available under that law has been claimed. (30I) (1) In paragraphs 30A to 30H, unless the contrary intention appears— (a) “the Mergers Directive” means Council Directive 90/434/ EEC of 23rd July 1990 on mergers, transfers &c., (b) “company” (except in paragraph 30B) means an entity listed as a company in the Annex to the Mergers Directive, and (c) “transparent entity” means an entity which is resident in a member State other than the United Kingdom and is listed as a company in the Annex to the Mergers Directive, but which does not have an ordinary share capital (within the meaning given by section 832 of the Taxes Act). (2) For the purposes of those paragraphs and sub-paragraph (1) above, a company is resident in a member State if— (a) it is within a charge to tax under the law of the State as being resident for that purpose, and (b) it is not regarded, for the purpose of any double taxation relief arrangements to which the State is a party, as resident in a territory not within a member State.

Intangible assets

5

After paragraph 85A of Schedule 29 (European cross-border mergers) (inserted by paragraph 12 Schedule 2) insert—

(85B) (1) This paragraph applies in relation to a transfer of a business, or a part of a business, where— (a) the transfer is of a kind to which paragraph 85(1) or (1A) applies (or to which either of those provisions would apply if the business, or the part of the business, transferred were carried on by the transferor in the United Kingdom), and (b) the transferor is a transparent entity. (2) Where this paragraph applies paragraph 85(2) does not apply in relation to the transfer. (3) If, as a result of a transfer to which this paragraph applies, a transfer profit would, but for the Mergers Directive, have been chargeable to tax under the law of a member State other than the United Kingdom, Part 18 of the Taxes Act 1988 (double taxation relief), including any arrangements having effect by virtue of section 788 of that Act (bilateral relief), shall apply as if that tax, calculated in accordance with sub-paragraph (5), had been chargeable. (4) In sub-paragraph (3) “transfer profit” means a profit which would be treated as accruing to a transparent entity in respect of an intangible fixed asset were it not transparent, by reason of the transfer of assets by the transparent entity. (5) Tax is calculated in accordance with this sub-paragraph if— (a) so far as permitted under the law of the relevant member State, losses arising on the transfer are set against profits arising on the transfer, and (b) any relief available under that law has been claimed. (85C) (1) This paragraph applies in relation to a merger if— (a) the merger is of a kind to which paragraph 85A(1) applies, (b) the conditions in paragraph 85A(2) are satisfied in relation to it, (c) one or more of the merging companies is a transparent entity. (2) Where this paragraph applies, if the assets and liabilities of a transparent entity are transferred to another company by reason of the merger, paragraph 85A(3) shall not apply. (3) If, as a result of a merger in relation to which this paragraph applies, a merger profit would, but for the Mergers Directive, have been chargeable to tax under the law of a member State other than the United Kingdom, Part 18 of the Taxes Act 1988 (double taxation relief), including any arrangements having effect by virtue of section 788 of that Act (bilateral relief), shall apply as if that tax, calculated in accordance with sub-paragraph (5), had been chargeable. (4) In sub-paragraph (3) “merger profit” means a profit which would be treated as accruing to a transparent entity in respect of an intangible fixed asset were it not transparent, by reason of the transfer of assets by the transparent entity on the merger. (5) Tax is calculated in accordance with this sub-paragraph if— (a) so far as is permitted under the law of the relevant member State, losses arising on the transfer are set against profits arising on the transfer, and (b) any relief available under that law has been claimed. (85D) (1) In paragraphs 85B and 85C— (a) “the Mergers Directive” means Council Directive 90/434/ EEC of 23rd July 1990 on mergers, transfers &c., (b) “company” means an entity listed as a company in the Annex to the Mergers Directive, and (c) “transparent entity” means an entity which is resident in a member State other than the United Kingdom and is listed as a company in the Annex to the Mergers Directive, but which does not have an ordinary share capital (within the meaning given by section 832 of the Taxes Act). (2) For the purposes of those paragraphs and sub-paragraph (1) above, a company is resident in a member State if— (a) it is within a charge to tax under the law of the State as being resident for that purpose, and (b) it is not regarded, for the purpose of any double taxation relief arrangements to which the State is a party, as resident in a territory not within a member State.

Signed

Dave Watts — Frank Roy — Two of the Lords Commissioners of Her Majesty's Treasury — 2007-11-08

Explanatory note

(This note is not part of the Regulations)

Footnotes

Editorial notes