Commentary

Section D6.407 Section 181 merger

Corporate tax
Corporate tax | Commentary

Section D6.407 Section 181 merger

Corporate tax | Commentary

D6.407 Section 181 merger

Mergers within TCGA 1992, s 181 typically arise in joint ventures between large groups.

A common mechanism to form a joint venture is:

  1.  

    •     each of the groups sets up a new subsidiary and hives down the appropriate assets (usually in return for an issue of shares, to generate base cost)

  2.  

    •     one of the groups will set up the joint venture company

  3.  

    •     the new subsidiaries are hived down under the joint venture company by way of a share-for-share exchange

We now have a jointly held joint venture group but, from a tax perspective, the new subsidiaries have left their respective groups holding assets that have been transferred to them within the last six years, which can trigger degrouping charges for capital gains purposes1. Similarly, degrouping charges can arise in relation to intangible fixed assets2. An equivalent relief to section 181 exists to cover the intangible degrouping charge3.

Section 181 is specifically designed to facilitate the formation of commercial joint ventures, by providing an exemption from the degrouping charge where certain conditions are met. These are explored in further detail below.

A section 181 merger may be achieved through companies or groups transferring businesses into a jointly owned entity where there is an arrangement (or series of arrangements) whereby:

  1.  

    (a)     one or more companies (the acquiring company or companies), which are not members of the A group, acquire an interest in the whole (or part) of a business which, before the arrangement or arrangements took place, was

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