Commentary

D4.929 Foreign mergers

Corporate tax
Corporate tax | Commentary

D4.929 Foreign mergers

Corporate tax | Commentary

D4.929 Foreign mergers

FA 2009 introduced the exempt distribution regime which broadly provides that most dividends received by a UK company on or after 1 July 2009 (from the UK or overseas) will be exempt from corporation tax (see Division D5.1). The provisions discussed in this article apply to overseas dividends received on or after 1 July 2009 that are not exempt and all other overseas dividends received before 1 July 2009.

In many countries, a legal merger can occur whereby one company is merged into another company leaving a single surviving company. The profits of the merging company may become the profits of the surviving company and the surviving company may be able to distribute those profits as dividends. Double taxation relief is available1 in cases where the profits of one company become the profits of another company other than by way of payment of a dividend. This rule is intended to deal, among other things, with foreign mergers. The calculation of the underlying tax rate within a German Organschaft and on profits accounted for on an equity basis may also fall within these provisions (see below).

In the case of a merger, it is assumed that the profits of the merged company were transferred by way of a dividend. As a result, the taxes paid on the transferred profits are treated as taxes paid by the surviving entity. Since it is assumed that a dividend has been paid to the surviving company by the merged company, the mixer cap will

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