1. The EU Mergers Directive
April 6, 2017
April 6, 2017
The EU Mergers Directive
What it does and why you should care!
Jim Close, HMRC
Pete Miller, Tax Director, Ernst & Young LLP

2. April 6, 2017
History
1978 – 3rd Company Law Directive on mergers of public companies
1990 – EU Mergers Directive
2005 – European Company statute
2005 – Amendment to EU Mergers Directive
2005 – 10th Company Law Directive on cross- border mergers

3. 3rd Company Law Directive on mergers of public companies
April 6, 2017
3rd Company Law Directive on mergers of public companies
Required domestic law to permit mergers of public companies
Legislation at sections 425 to 427 and Sch 15B CA 1985
Now at …
UK legislation does not appear to be restricted to public companies
Although no one seemed to know about it!

4. April 6, 2017
What is a merger?
"merger by acquisition" shall mean the operation whereby one or more companies are wound up without going into liquidation and transfer to another all their assets and liabilities in exchange for the issue to the shareholders of the company or companies being acquired of shares in the acquiring company and a cash payment, if any, not exceeding 10 % of the nominal value of the shares so issued or, where they have no nominal value, of their accounting par value

5. Merger by acquisition A B B a b a b
April 6, 2017
Merger by acquisition A B B a b a b
Company B issues shares to the shareholders of Company A
Company A is dissolved without a winding up
(cf liquidation reconstruction)

6. April 6, 2017
What is a merger?
"merger by the formation of a new company“ shall mean the operation whereby several companies are wound up without going into liquidation and transfer to a company that they set up all their assets and liabilities in exchange for the issue to their shareholders of shares in the new company and a cash payment, if any, not exceeding 10 % of the nominal value of the shares so issued or, where they have no nominal value, of their accounting par value.

7. Merger by formation of NewCo
April 6, 2017
Merger by formation of NewCo A
NewCo B
NewCo a b a b
NewCo issues shares to the shareholders of Companies A and B
Companies A and B are dissolved without a winding up
(cf liquidation reconstruction)

8. April 6, 2017
2007 changes – SI 2007/3186
Schedule 1 – cross-border transfers of business
Schedule 2 – European cross-border mergers
Schedule 3 – Mergers, etc.: treatment of transparent entities

9. UK Mergers – 2005 tax provisions
April 6, 2017
UK Mergers – 2005 tax provisions
Section 140E - merger to form UK SE
Section 140F - merger to form non-UK SE
Section 140G - shareholder relief

10. 2007 changes – section 140E Merger to form and SE
April 6, 2017
2007 changes – section 140E
Merger to form and SE
Merger to form an SCE
Merger by acquisition
Merger to form new company
Merged entity is UK resident or has UK PE
No gain, no loss transfer

11. 2007 changes – section 140F Merger to form and SE
April 6, 2017
2007 changes – section 140F
Merger to form and SE
Merger to form an SCE
Merger by acquisition
Merger to form new company
UK company transfers assets of non-UK PE to non-UK transferee
Aggregate gain subject to section 815A ICTA

12. Consequential amendments
April 6, 2017
Consequential amendments
Section 140G – shareholder relief
Section 209(1A) ICTA – treated as distributions in a winding up
S140 TCGA
Loan relationships / derivative contracts
Capital allowances
Intangibles

13. Partial divisions – ss140A & 140C
April 6, 2017
Partial divisions – ss140A & 140C
New provision to permit part of the business to be transferred
Part transfers treated as schemes of reconstruction to which s136 applies (new section140DA)
References to ‘trade’ changed to ‘business’
New relief for cross-border demergers, section 213A ICTA

14. Outstanding points Can UK companies be merged?
April 6, 2017
Outstanding points
Can UK companies be merged?
Is the UK wholly compliant with the Mergers Directive? (10% test)
Do UK shareholders get relief for a merger of non-UK companies?
What about mergers of EU and non-EU companies?

15. The EU Mergers Directive
April 6, 2017
April 6, 2017
The EU Mergers Directive
What it does and why you should care!
Jim Close, HMRC
Pete Miller, Tax Director, Ernst & Young LLP

16. April 6, 2017
Appendix
Sections 140 A and 140C TCGA
An overview

17. Section 140A TCGA 1992 Transfer of a UK trade
April 6, 2017
Section 140A TCGA 1992
Transfer of a UK trade
Co A resident in a Member State transfers UK trade
To Co B resident in another Member State
Consideration is wholly shares or debentures issued by B to A

18. Section 140A TCGA 1992 Conditions
April 6, 2017
Section 140A TCGA 1992
Conditions
Co B has a UK PE and gains chargeable in UK or
Co B is UK resident and liable to CT on UK gains
Result
No gain, no loss on transfer of assets

19. April 6, 2017
Section 140A examples A A UK B UK

20. Section 140C TCGA 1992 Transfer of a non-UK trade
April 6, 2017
Section 140C TCGA 1992
Transfer of a non-UK trade
Co A resident in UK transfers non-UK trade (cf s140 TCGA)
To Co B resident in another Member State
Consideration is wholly or partly shares or debentures issued by B to A

21. Section 140B TCGA 1992 Result Co A’s gains and losses aggregated
April 6, 2017
Section 140B TCGA 1992
Result
Co A’s gains and losses aggregated
Gain taxed subject to section 815A TCGA
So credit given for tax that would have bee payable in Member State of PE had the Mergers Directive not existed
NB NOT tax free

22. April 6, 2017
Section 140B examples
A UK
A UK
Non-UK
B Non-UK
Non-UK