Commentary

D6.422 Exempt demerger—conditions

Corporate tax
Corporate tax | Commentary

D6.422 Exempt demerger—conditions

Corporate tax | Commentary

D6.422 Exempt demerger—conditions

Conditions applicable to both direct and indirect demergers

The following conditions must be met for both direct and indirect mergers:

  1.  

    (a)     all relevant companies1 involved in the distribution must be resident in the UK or an EU member state2 'Relevant company' includes the distributing company, each subsidiary whose shares are transferred and each transferee company,

  2.  

    (b)     at the time of the distribution the distributing company must be a trading company or a member of a 75% trading group and each of its 75% subsidiaries involved in the distribution must be trading companies or the holding company of a trading group3. A member means a holder of ordinary share capital. A holding company means one whose business (ignoring any trade which it carries on) consists wholly or mainly of the holding of shares or securities of one or more companies which are its 75% subsidiaries,

  3.  

    (c)     the distribution must be made wholly or mainly for the purpose of benefiting some or all of the trading activities which before the distribution were carried on by a single company or group and after the distribution will be carried on by two or more companies or groups4;

  4.  

    (d)     the distribution must not form part of a scheme or arrangement, the main purpose, or one of the main purposes, of which is5:

    1.  

      (1)     the avoidance of tax (including stamp duty or stamp duty land tax); or

    2.  

      (2)     the making of a chargeable payment (see D6.423) (or

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