Corporation Tax Act 2009 section 789

Merger carried out for genuine commercial reasons

Section 789 provides an exemption from the degrouping charge rules where a company leaves a group as part of a genuine commercial merger, so that legitimate business reorganisations are not penalised by unexpected tax liabilities on intangible fixed assets.

• The degrouping charge provisions (sections 780 to 787) are disapplied where a company ceases to be a group member as part of a qualifying merger carried out for genuine commercial reasons, provided tax avoidance is not a main purpose.
• A qualifying merger requires that one or more acquiring companies (outside the group) obtain interests in the transferee's business, with at least 25% of each interest consisting of ordinary share capital, and the acquisition must not be made with a view to disposal.
• In return, one or more group members must acquire interests in the business of the acquiring company or companies (or a company at least 90% owned by those acquirers), again with at least 25% in ordinary shares, with the balance in other shares or debentures.
• The total value of interests flowing in each direction must be substantially the same, and the consideration received by the group for the outgoing interest must consist of, or be applied towards acquiring, the incoming interest.