Taxation of Chargeable Gains Act 1992 section 140J

Mergers

Section 140J deals with the capital gains tax treatment of cross-border mergers where at least one of the merging companies is a transparent entity, modifying the normal merger relief rules and providing for notional double taxation relief.

• The section applies to qualifying mergers (as defined in section 140E) where at least one merging company is a transparent entity — that is, an entity whose gains are attributed directly to its members rather than being taxed at entity level.
• Where a transparent entity transfers its assets and liabilities to another company as part of the merger, the normal no-gain/no-loss treatment under section 140E and the share exchange treatment under section 140G are both disapplied. Where other companies transfer their assets to a transparent entity, only the share exchange treatment under section 140G is disapplied.
• If the merger produces a gain for the transparent entity (a "merger gain") that would have been taxable in another member state but for the EU Mergers Directive, the UK will grant notional double taxation relief as though that foreign tax had actually been charged.
• When calculating the notional foreign tax for double taxation relief purposes, losses arising on the merger must be offset against gains to the extent permitted under the relevant foreign law, and it is assumed that all available reliefs under that law have been claimed.