Finance Act 2002

Part 11 U.K. Transfer of business or trade

Company reconstruction involving transfer of business U.K.

84 (1) This paragraph applies where—

(a) a scheme of reconstruction involves the transfer of the whole or part of the business of one company (“the transferor”) to another company (“the transferee”), and

(b) the transferor receives no part of the consideration for the transfer (otherwise than by the transferee taking over the whole or part of the liabilities of the business).

For this purpose “scheme of reconstruction” has the same meaning as in section 136 of the Taxation of Chargeable Gains Act 1992 (c. 12).

(2) If the assets included in the transfer include intangible fixed assets that are chargeable intangible assets in relation to the transferor immediately before the transfer and in relation to the transferee immediately after the transfer, the transfer of those assets is treated for the purposes of this Schedule as tax-neutral (see paragraph 140).

(3) If a transfer falls within sub-paragraph (1) and also within paragraph 55 (transfers within a group), that paragraph applies and this paragraph does not.

(4) This paragraph does not apply if the transferor or the transferee is—

(a) a qualifying society within the meaning of section 461A of the Taxes Act 1988 (incorporated friendly societies entitled to exemption from tax), or

(b) a dual resident investing company within the meaning of section 404 of that Act (limitation of group relief).

(5) This paragraph applies only if the reconstruction—

(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 avoidance of liability to corporation tax, capital gains tax or income tax.

(6) The requirements of sub-paragraph (5) are treated as met where, before the transfer, the Inland Revenue have, on the application of the transferee, notified that company that they are satisfied that the requirements of that sub-paragraph will be met.

For the procedure on such an application, see paragraph 88.

[F1 Transfer of UK business between companies resident in different EU member States] U.K.

85 [F2 (1) This paragraph applies where—

(a) an EU company resident in one member State (“the transferor”) transfers the whole or part of the business carried on by it in the United Kingdom to an EU company resident in another member State (“the transferee”),

(b) the transfer is wholly in exchange for securities issued by the transferee to the transferor, and

(c) a claim is made under this paragraph by the transferor and the transferee.

(1A) This paragraph also applies where an EU company transfers part of its business to one or more EU companies if—

(a) the transferor is resident in one member State,

(b) the part of the transferor's business which is to be transferred is carried on by the transferor in the United Kingdom,

(c) at least one transferee is resident in a member State other than that in which the transferor is resident,

(d) the transferor continues to carry on a business after the transfer,

(e) a claim is made under this paragraph by the transferor and the transferee (or each of the transferees), and

(f) either of the following conditions is satisfied.

(1B) Condition 1 is that the transfer is made in exchange for the issue of shares in or debentures of each transferee company to the persons holding shares in or debentures of the transferor.

(1C) Condition 2 is that the transfer is not made in exchange for the issue of shares in or debentures of each transferee by reason only, and to the extent only, that a transferee is prevented from complying with Condition 1 by section 658 of the Companies Act 2006 (rule against limited company acquiring own shares) or by a corresponding provision of the law of another member State preventing the issue of shares or debentures to itself.

F3 (1D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(2) If the transfer includes intangible fixed assets that are chargeable intangible assets in relation to the transferor immediately before the transfer and in relation to the transferee immediately after the transfer, the transfer of those assets is treated for the purposes of this Schedule as tax-neutral (see paragraph 140).

(3) For the purposes of this paragraph a company is regarded as resident in a member State if it is within a charge to tax under the law of the State because it is regarded as resident for the purposes of the charge.

For this purpose a company is treated as not within a charge to tax under the law of a member State if it falls to be regarded for the purposes of any double taxation relief arrangements to which the State is a party as resident in a territory which is not within any of the member States.

(4) This paragraph applies only if the transfer of the [F4 business] or part—

(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 avoidance of liability to corporation tax, capital gains tax or income tax.

(5) The requirements of sub-paragraph (4) are treated as met where, before the transfer, the Inland Revenue have, on the application of the transferor and the transferee [F5 (or each of the transferees)] , notified those companies that they are satisfied that the requirements of that sub-paragraph will be met.

For the procedure on such an application, see paragraph 88.

(6) In this paragraph—

(a) “EU company” means a body incorporated under the law of a member State; and

(b) “securities” includes shares.

Textual Amendments

F1 Sch. 29 para. 85 heading substituted (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 21(5)

F2 Sch. 29 para. 85(1)-(1D) substituted for Sch. 29 para. 85(1) (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 21(2)

F3 Sch. 29 para. 85(1D) omitted (with effect in accordance with reg. 3 of the amending S.I.) by virtue of The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 11

F4 Word in Sch. 29 para. 85(4) substituted (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 21(3)

F5 Words in Sch. 29 para. 85(5) inserted (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 21(4)

Modifications etc. (not altering text)

C1 Sch. 29 para. 85 modification to earlier affecting provision S.I. 2007/3186, reg. 3(1) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(1)

C2 Sch. 29 para. 85(1)-(1D) modification to earlier affecting provision S.I. 2007/3186, reg. 3(1) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(1)

C3 Sch. 29 para. 85(1C) modified (temp.) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 6(1), Sch. 4 para. 4(e) (with reg. 6(2))

C4 Sch. 29 para. 85(4) modification to earlier affecting provision S.I. 2007/3186, reg. 3(1) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(1)

C5 Sch. 29 para. 85(5) modification to earlier affecting provision S.I. 2007/3186, reg. 3(1) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(1)

European cross-border merger: transfer of UK business U.K.

[F6 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,

F7 (d) ... 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.

F8 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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 [F9 the merger], 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.]

Textual Amendments

F6 Sch. 29 para. 85A substituted (with effect in accordance with reg. 3(2) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 2 para. 11

F7 Sch. 29 para. 85A(5)(d) omitted (with effect in accordance with reg. 3 of the amending S.I.) by virtue of The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 12(2)

F8 Sch. 29 para. 85A(6) omitted (with effect in accordance with reg. 3 of the amending S.I.) by virtue of The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 12(3)

F9 Words in Sch. 29 para. 85A(8) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 12(4)

Modifications etc. (not altering text)

C6 Sch. 29 para. 85A(2)(d) modified (temp.) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 6(1), Sch. 4 para. 4(f) (with reg. 6(2))

[F10 Transparent entities U.K.

Textual Amendments

F10 Sch. 29 paras. 85B-85D and cross-heading inserted (with effect in accordance with reg. 3(3) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 3 para. 5

85B (1) This paragraph applies in relation to a transfer of a business, or a part of a business, where— U.K.

(a) the transfer is of a kind [F11 mentioned in paragraph 85(1) or (1A) (or which would be of such a kind] 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 [F12 85] 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 [F13 intangible fixed 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 [F14 of those intangible fixed assets] are set against profits arising on the transfer [F14 of those intangible fixed assets], and

(b) any relief available under that law has been claimed.

Textual Amendments

F11 Words in Sch. 29 para. 85B(1)(a) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 13(2)

F12 Word in Sch. 29 para. 85B(2) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 13(3)

F13 Words in Sch. 29 para. 85B(4) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 13(4)

F14 Words in Sch. 29 para. 85B(5)(a) inserted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 13(5)

Modifications etc. (not altering text)

C7 Sch. 29 paras. 85B-85D modification to earlier affecting provision S.I. 2007/3186, reg. 3(3) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(2)

85C (1) This paragraph applies in relation to a merger if— U.K.

(a) the merger is of a kind [F15 mentioned in paragraph 85A(1)],

(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 [F16 85A shall not apply in relation to the transfer].

(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 [F17 intangible fixed 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 [F18 of those intangible fixed assets] are set against profits arising on the transfer [F18 of those intangible fixed assets], and

(b) any relief available under that law has been claimed.

Textual Amendments

F15 Words in Sch. 29 para. 85C(1)(a) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 14(2)

F16 Words in Sch. 29 para. 85C(2) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 14(3)

F17 Words in Sch. 29 para. 85C(4) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 14(4)

F18 Words in Sch. 29 para. 85C(5)(a) inserted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 14(5)

Modifications etc. (not altering text)

C8 Sch. 29 paras. 85B-85D modification to earlier affecting provision S.I. 2007/3186, reg. 3(3) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(2)

85D (1) In paragraphs [F19 85, 85A, 85B, 85C, 87 and 87A and this paragraph]— U.K.

(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 [F20 paragraphs 85B and 85C] 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.]

Textual Amendments

F19 Words in Sch. 29 para. 85D(1) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 15(2)

F20 Words in Sch. 29 para. 85D(2) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 15(3)

Modifications etc. (not altering text)

C9 Sch. 29 paras. 85B-85D modification to earlier affecting provision S.I. 2007/3186, reg. 3(3) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(2)

Postponement of charge on transfer of assets to non-resident company. U.K.

86 (1) This paragraph applies where—

(a) a company resident in the United Kingdom and carrying on a trade outside the United Kingdom through a [F21 permanent establishment] (“the transferor”) transfers that trade, or part of it, together with the whole assets of the company used for the purposes of the trade or part (or together with the whole of those assets other than cash) to a company not resident in the United Kingdom (“the transferee”),

(b) the trade or part is so transferred wholly or partly in exchange for securities consisting of shares, or of shares and loan stock, issued by the transferee to the transferor, and

(c) the shares so issued, either alone or taken together with any other shares in the transferee already held by the transferor, amount in all to not less than one quarter of the ordinary share capital of the transferee.

(2) If the transfer includes intangible fixed assets that are chargeable intangible assets in relation to the transferor immediately before the transfer (“relevant assets”), the transferor may claim that this Schedule shall have effect in accordance with the following provisions.

(3) If the proceeds of realisation of a relevant asset exceed the cost of the asset recognised for tax purposes, the proceeds of realisation are treated as reduced—

(a) if the securities are the whole consideration for the transfer, by the amount of the excess, and

(b) if the securities are not the whole of that consideration, by the appropriate proportion of the excess.

For this purpose “the appropriate proportion” means the proportion that the market value of the securities at the time of the transfer bears to the market value of the whole of the consideration at that time.

(4) If at any time after the transfer the transferor realises the whole or part of the securities held by it immediately before that time, the transferor shall bring into account for tax purposes a credit equal to the whole or the appropriate proportion of the aggregate deferred gain.

For this purpose—

• “the appropriate proportion” means the proportion that the market value of the part of the securities disposed of bears to the market value of the securities held immediately before the disposal; and

• “the aggregate deferred gain” means the aggregate of the amounts by which the proceeds of realisation of relevant assets were reduced under sub-paragraph (3), so far as not already taken into account under this sub-paragraph or sub-paragraph (5).

(5) If at any time within six years after the transfer the transferee realises any of the relevant assets held by it immediately before that time, the transferor shall bring into account for tax purposes a credit equal to the whole or the appropriate proportion of the aggregate deferred gain.

For this purpose—

• “the appropriate proportion” means the proportion that the deferred gain attributable to the relevant assets realised bears to the deferred gain attributable to the relevant assets held immediately before the time of the realisation;

• “the aggregate deferred gain” means the aggregate of the amounts by which the proceeds of realisation of relevant assets were reduced under sub-paragraph (3), so far as not already taken into account under this sub-paragraph or sub-paragraph (4); and

• “the deferred gain attributable to” any relevant assets means the aggregate of the amounts by which the proceeds of realisation of those assets were reduced under sub-paragraph (3).

(6) There shall be disregarded—

(a) for the purposes of sub-paragraph (4), any disposal within section 171 of the Taxation of Chargeable Gains Act 1992 (c. 12) (transfers within a group); and

(b) for the purposes of sub-paragraph (5), any transfer by one member of a group (within the meaning of Part 8 of this Schedule) to another.

(7) Where a person acquires securities or an asset on a disposal disregarded under sub-paragraph (6) (and without there having been a previous disposal not so disregarded), a subsequent disposal of the securities or asset by that person shall be treated as a disposal by the transferor or, as the case may be, the transferee.

(8) This paragraph applies only if the transfer of the trade or part—

(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 avoidance of liability to corporation tax, capital gains tax or income tax.

(9) The requirements of sub-paragraph (8) are treated as met where, before the transfer, the Inland Revenue have, on the application of the transferor, notified that company that they are satisfied that the requirements of that sub-paragraph will be met.

For the procedure on such an application, see paragraph 88.

(10) No claim may be made under this paragraph as regards a transfer in relation to which a claim is made under paragraph 87 (transfer of non-UK trade).

Textual Amendments

F21 Words in Sch. 29 para. 86(1)(a) substituted (with effect in accordance with s. 153(4) of the amending Act) by Finance Act 2003 (c. 14), s. 153(1)(e)

[F22 Transfer of non-UK business] U.K.

87 [F23 (1) This paragraph applies where—

(a) an EU company resident in the United Kingdom (“the transferor”) transfers to an EU company resident in another member State (“the transferee”) the whole or part of a business that, immediately before the time of the transfer, the transferor carried on in a member state other than the United Kingdom (“the other member State”) through a permanent establishment,

(b) the transfer—

(i) includes the whole of the assets of the transferor used for the purposes of the business or part (or the whole of those assets other than cash), and

(ii) is wholly or partly in exchange for securities issued by the transferee to the transferor,

(c) the transfer includes intangible fixed assets—

(i) that are chargeable intangible assets in relation to the transferor immediately before the transfer, and

(ii) in the case of one or more of which the proceeds of realisation exceed the costs recognised for tax purposes, and

(d) the transferor makes a claim under this paragraph.

(1A) This paragraph also applies where an EU company resident in the United Kingdom transfers part of its business to one or more EU companies—

(a) immediately before the time of the transfer, the transferor was carrying on the part of its business to be transferred in the other member State through a permanent establishment,

(b) at least one transferee is resident in a member State other than the United Kingdom,

(c) the transferor continues to carry on a business,

(d) the conditions in sub-paragraph (1)(b)(i), (c) and (d) are satisfied, and

(e) either of the following conditions is satisfied.

(1B) Condition 1 is that the transfer is made in exchange for the issue of shares in or debentures of each transferee company to the persons holding shares in or debentures of the transferor.

(1D) Condition 2 is that the transfer is not made in exchange for the issue of shares in or debentures of each transferee by reason only, and to the extent only, that a transferee is prevented from complying with Condition 1 by section 658 of the Companies Act 2006 (rule against limited company acquiring own shares) or by a corresponding provision of the law of another member State preventing the issue of shares or debentures to itself.]

(2) Where tax would have been chargeable under the law of the other member State in respect of the transfer of [F24 the intangible fixed assets] but for the Mergers Directive, 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 the amount of tax, calculated on the required basis, that would have been payable under that law in respect of the transfer of those assets but for that Directive, were tax payable under that law.

(3) For this purpose “the required basis” is that—

(a) so far as permitted under the law of the other member State, any losses arising on the transfer [F25 of those intangible fixed assets] are set against any gains so arising, and

(b) any relief available to the transferor under that law has been duly claimed.

(4) In this paragraph—

• “EU company” means a body incorporated under the law of a member State;

• “the Mergers Directive” means the Directive of the Council of the European Communities dated 23rd July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different member States (No. 90/434/EEC);

• “securities” includes shares.

(5) For the purposes of this paragraph a company is regarded as resident in another member State if it is within a charge to tax under the law of the State because it is regarded as resident for the purposes of the charge.

For this purpose a company shall be treated as not within a charge to tax under the law of a member State if it falls to be regarded for the purposes of any double taxation relief arrangements to which the State is a party as resident in a territory which is not within any of the member States.

(6) No claim may be made under this paragraph as regards a transfer in relation to which a claim is made under paragraph 86 (postponement of charge on transfer of assets to non-resident company).

(7) This paragraph applies only if the transfer of the [F26 business] or part—

(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 avoidance of 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 Inland Revenue have, on the application of the transferor, notified that company that they are satisfied that the requirements of that sub-paragraph will be met.

For the procedure on such an application, see paragraph 88.

Textual Amendments

F22 Sch. 29 para. 87 heading substituted (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 22(4)

F23 Sch. 29 para. 87(1)-(1D) substituted for Sch. 29 para. 87(1) (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 22(2)

F24 Words in Sch. 29 para. 87(2) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 16(2)

F25 Words in Sch. 29 para. 87(3) inserted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 16(3)

F26 Word in Sch. 29 para. 87(7) substituted (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 22(3)

Modifications etc. (not altering text)

C10 Sch. 29 para. 87 modification to earlier affecting provision S.I. 2007/3186, reg. 3(1) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(1)

C11 Sch. 29 para. 87(1)-(1D) modification to earlier affecting provision S.I. 2007/3186, reg. 3(1) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(1)

C12 Sch. 29 para. 87(1D) modified (temp.) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 6(1), Sch. 4 para. 4(g) (with reg. 6(2))

C13 Sch. 29 para. 87(7) modification to earlier affecting provision S.I. 2007/3186, reg. 3(1) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(1)

European cross-border merger: transfer of non-UK business U.K.

[F27 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, F28 ...

(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, [F29 and

(h) in the case of a merger to which sub-paragraph (1)(c) or (d) applies, in the course of the merger each transferor ceases to exist without being in liquidation (within the meaning given by section 247 of the Insolvency Act 1986 (c.55)).]

(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,

F30 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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.]

Textual Amendments

F27 Sch. 29 para. 87A substituted (with effect in accordance with reg. 3(2) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 2 para. 12

F28 Word in Sch. 29 para. 87A(2)(f) omitted (with effect in accordance with reg. 3 of the amending S.I.) by virtue of The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 17(2)(a)

F29 Sch. 29 para. 87A(2)(h) and word inserted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 17(2)(b)

F30 Sch. 29 para. 87A(5)(d) omitted (with effect in accordance with reg. 3 of the amending S.I.) by virtue of The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 17(3)

Modifications etc. (not altering text)

C14 Sch. 29 para. 87A(2)(g) modified (temp.) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 6(1), Sch. 4 para. 4(h) (with reg. 6(2))

Procedure on application for clearance U.K.

88 (1) This paragraph applies in relation to an application under paragraph 84(6), 85(5), [F31 [F32 85A(8)], 87A(7)], 86(9) or 87(8).

(2) The application must be in writing and must contain particulars of the operations that are to be effected.

(3) The Inland Revenue may, within 30 days of the receipt of the application or of any further particulars previously required under this sub-paragraph, by notice require the applicant to furnish further particulars for the purpose of enabling the Inland Revenue to make their decision.

If any such notice is not complied with within 30 days or such longer period as the Inland Revenue may allow, the Inland Revenue need not proceed further on the application.

(4) The Inland Revenue shall notify their decision to the applicant within 30 days of receiving the application or, if they give a notice under sub-paragraph (3), within 30 days of the notice being complied with.

(5) If the Inland Revenue notify the applicant that they are not satisfied as mentioned in paragraph 84(6), 85(5), 86(9) or 87(8) or do not notify their decision to the applicant within the time required by sub-paragraph (4), the applicant may within 30 days of the notification or of that time require the Inland Revenue to transmit the application, together with any notice given and further particulars furnished under sub-paragraph (3), to the Special Commissioners.

In that event any notification by the Special Commissioners shall have effect for the purposes of paragraph 84(6), 85(5), [F33 85A(7), 87A(7)], 86(9) or 87(8) as if it were a notification by the Inland Revenue.

(6) If any particulars furnished under this paragraph do not fully and accurately disclose all facts and considerations material for the decision of the Inland Revenue or the Special Commissioners, any resulting notification by the Inland Revenue or the Commissioners is void.

Textual Amendments

F31 Words in Sch. 29 para. 88(1) substituted (with effect in accordance with reg. 3(2) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 2 para. 13

F32 Word in Sch. 29 para. 88(1) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 18

F33 Words in Sch. 29 para. 88(5) substituted (with effect in accordance with reg. 3(2) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 2 para. 13

Transfer of life assurance business U.K.

89 (1) This paragraph applies where there is—

(a) a transfer between two companies of business consisting of the effecting or carrying out of contracts of long-term insurance which has effect under an insurance business transfer scheme, or

(b) a transfer between two companies that is a qualifying overseas transfer within the meaning [F34 given by the definition treated as inserted into section 431(2) of the Taxes Act 1988 by paragraph 6(9) of Schedule 19AC to that Act] (transfer of business of overseas life insurance company),

and the assets included in the transfer include intangible fixed assets that are chargeable intangible assets in relation to the transferor company immediately before the transfer and in relation to the successor company immediately after the transfer.

(2) Where this paragraph applies the transfer of those assets is treated for the purposes of this Schedule as tax-neutral (see paragraph 140).

(3) In this paragraph—

• F35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• F36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F34 Words in Sch. 29 para. 89(1)(b) substituted (with effect in accordance with reg. 1 of the amending S.I.) by The Overseas Life Insurance Companies Regulations 2004 (S.I. 2004/2200), regs. 1(1), 11(5)

F35 Words in Sch. 29 para. 89(3) repealed (with effect in accordance with Sch. 10 para. 17(2) of the amending Act) by Finance Act 2007 (c. 11), Sch. 10 para. 14(10)(e), Sch. 27 Pt. 2(10)

F36 Words in Sch. 29 para. 89(3) repealed (with effect in accordance with Sch. 9 para. 17(1) of the amending Act) by Finance Act 2007 (c. 11), Sch. 9 para. 1(2)(h), Sch. 27 Pt. 2(9)

Modifications etc. (not altering text)

C15 Sch. 29 para. 89 modified by SI 1997/473 reg. 53J (as inserted (30.1.2003) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 2003 (S.I. 2003/23), regs. 1(1), 10

Transfer of business of building society to company U.K.

90 (1) Where—

(a) there is a transfer of the whole of a building society’s business to a company (“the successor company”) in accordance with section 97 and the other applicable provisions of the Building Societies Act 1986 (c. 53), and

(b) the assets included in the transfer include intangible fixed assets that are chargeable intangible assets in relation to the society immediately before the transfer and in relation to the successor company immediately after the transfer,

the transfer of those assets is treated for the purposes of this Schedule as tax-neutral (see paragraph 140).

(2) If because of the transfer a company ceases to be a member of the same group as the society, that event shall not cause paragraph 58 or 60 (deemed realisation and reacquisition) to have effect as respects any asset acquired by the company from the society or any other member of the same group.

(3) Where the society and the successor company are members of the same group at the time of the transfer but later cease to be so, that later event shall not cause paragraph 58 or 60 to have effect as respects—

(a) any asset acquired by the successor company on or before the transfer from the society or any other member of the same group, or

(b) any asset acquired from the society or any other member of the same group by a company other than the successor company that is a member of the same group at the time of the transfer.

(4) Where a company which is a member of the same group as the society at the time of the transfer—

(a) ceases to be a member of that group and becomes a member of the same group as the successor company, and

(b) subsequently ceases to be a member of that group,

paragraph 58 has effect on that later event as respects any asset to which this sub-paragraph applies that is acquired by the company otherwise than from the successor company as if it had been acquired from the successor company.

(5) Sub-paragraph (4) applies to any asset acquired by the company from the society, or from another company which is a member of the same group at the time of the transfer, when the company and the society, or the company, the society and the other company, were members of the same group.

(6) Sub-paragraph (4) does not apply where—

(a) the company which acquired the asset is a 75% subsidiary of the company from which it was acquired, or vice versa, and

(b) those companies cease simultaneously to be members of the same group as the successor company but continue to be members of the same group as one another.

Amalgamation of or transfer of engagements by certain societies U.K.

91 (1) Where—

(a) there is an amalgamation of two or more societies to which this paragraph applies or a transfer of engagements from one such society to another, and

(b) in the course of or as part of the amalgamation or transfer of engagements, there are transferred from one society (“the transferor”) to another (“the transferee”) intangible fixed assets that are chargeable intangible assets in relation to the transferor immediately before the transfer and in relation to the transferee immediately after the transfer,

the transfer of those assets is treated for the purposes of this Schedule as tax-neutral (see paragraph 140).

(2) The societies to which this paragraph applies are—

(a) a building society,

(b) a registered industrial and provident society within the meaning of section 486 of the Taxes Act 1988, and

(c) a co-operative association in relation to which subsections (1) and (8) of that section have effect as they have effect in relation to a registered industrial and provident society.