Taxation (International and Other Provisions) Act 2010 section 119

Tax treated as chargeable in respect of transfer of loan relationship, derivative contract or intangible fixed assets

Section 119 ensures that, for double taxation relief purposes, tax is treated as if it had been chargeable on transfers of loan relationships, derivative contracts or intangible fixed assets where such tax was only waived because of the EU Mergers Directive.

• Where a member state would have charged tax on a transfer but for the Mergers Directive, UK double taxation relief rules apply as though that foreign tax had actually been charged.
• When calculating this notional foreign tax, it is assumed that available losses are set against gains on the transfer and that all reliefs due to the transferring company are claimed.
• The provision does not apply if the merger lacks genuine commercial reasons or if tax avoidance of UK corporation tax, capital gains tax or income tax is a main purpose of the arrangements.
• The merging companies may apply to HMRC for advance clearance confirming that the anti-avoidance rule will not block the relief, following procedures set out in the Corporation Tax Act 2009.