Taxation (International and Other Provisions) Act 2010 section 122

Tax treated as chargeable in respect of gains on transfer of non-UK business

Section 122 provides relief for notional foreign tax that would have been charged on gains arising from transfers of non-UK businesses, parts of non-UK businesses, or cross-border mergers, were it not for the EU Mergers Directive exempting those gains from tax in the host country.

• When a UK-resident company transfers the assets of a business it carries on through a permanent establishment in another member state, the Mergers Directive may exempt the resulting capital gains from tax in that host state
• Because the UK taxes companies on their worldwide profits, it is permitted to tax the gain itself but must allow relief for the foreign tax that the host state would have charged had the Directive not applied
• This section treats that notional host-state tax as if it were actually payable, so that it can be credited against the UK tax liability under double taxation relief or double taxation arrangements
• The notional foreign tax is calculated on the basis that any available losses on the transfer are set against gains (to the extent the host state's law allows) and that all reliefs available to the transferring company have been claimed