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

Loan relationships U.K.

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

“Transparent entities U.K.

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) M1 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) M2 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.”.

Marginal Citations

M1 Paragraphs 12D to 12G are inserted by paragraph 16 of Schedule 1 to these Regulations.

M2 Paragraph 12B was inserted by section 54 of the Finance (No. 2) Act 2005.