Office of Public Sector Information

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations amend primary legislation to make provision to ensure that United Kingdom direct tax legislation is compliant with its obligations under: Directive 90/434/EEC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies (OJ L 58, 4.3.2005. p.19), as amended by Council Directive 2005/19/EC of 17 February 2005 amending Directive 90/434/EEC 1990 on the common system of taxation applicable to mergers, divisions, transfer of assets and exchanges of shares concerning companies of different Member States (OJ L 310, 25.11.2005. p1) (“The Mergers Directive”).

Regulation 1 provides for the citation, commencement and effect, and regulation 2 provides definitions for expressions used in the instrument.

Regulation 3 provides for Schedules 1 to 3 to have effect. They contain amendments to primary legislation. It also provides that a number of the amendments will have retrospective effect in relation to specified types of merger and transfers.

Schedule 1 makes amendments to the Taxation of Chargeable Gains Act 1992, (“TCGA 1992”), the Income and Corporation Taxes Act 1988 (c. 1: “ICTA”), the Finance Acts 1996 and 2002 (“FA 1996” and “FA 2002” respectively) and the Capital Allowances Act 2001 (c. 1: “CAA 2001”) in consequence of the Mergers Directive in its application to cross-border transfers of business. The amendments implement in part Articles 4, 8 and 10 of the Mergers Directive, and provide the anti-avoidance protection allowed by Article 11 of that Directive.

Schedule 2 amends ICTA, TCGA 1992, FA 1996, CAA 2001 and the Finance Act 1988 in relation to European cross-border mergers, implementing in part Articles 4, 8 and 10 of the Mergers Directive.

Schedule 3 amends TCGA 1992, FA 1996 and FA 2002 in relation to the treatment of transparent entities. A transparent entity is an entity resident in a Member State outside the United Kingdom and which is listed as company in the Annex to the Mergers Directive, but which does not have a share capital and, were it resident in the United Kingdom would not be capable of being a company within the meaning of the Companies Act 2006 (c. 46).

A transposition note has been prepared which sets out how the main elements of the Mergers Directive will be transposed in to UK law. A Regulatory Impact Assessment of the effect of this instrument on the costs to business has been prepared. Both may be obtained from CT and VAT team, HMRC, 100 Parliament Street, London, SW1A 2HQ. They are also available on the HMRC website (www.hmrc.gov.uk). Copies of both documents have been placed in the Library of the House of Commons.