624 Exemption from charge under section 623 in case of certain mergers

Summary

This section provides that where a company ceases to be a member of a group, as part of a merger, which is for bona fide commercial reasons, it is not to be subject to the provisions set out in section 623. The requirements for an arrangement to be recognised as a merger under this section are set out and provision is made for the application of the section to non-resident companies.

Details

(1) Section 623 is not to apply in a case where, as part of a merger, a company (company A) ceases to be a member of a group – and where this merger is carried out for bona fide commercial reasons and not to avoid tax.

(2) For this purpose a merger is —

• where one or more companies outside A’s group acquires an interest in the whole or part of A’s business,
• where A’s group acquires an interest in the business carried on by each acquiring company or (to meet the case where the acquiring companies are a consortium operating through a jointly-owned company) by a company 90 per cent or more of whose share capital is owned by the acquiring companies.

(4) In addition —

• at least 25 per cent of the value of the interests acquired in A’s group by the acquiring companies, and by A’s group in them, must consist of ordinary shares, and that the rest of that interest must also be a permanent investment (that is, shares and debentures),
• the interest in A’s group acquired by the acquiring companies must have substantially the same value as the interest acquired by A’s group in them, and
• the whole of the consideration received by A’s group (other than a de minimis amount) for the acquisition of an interest in its business must consist of or be applied in obtaining the A group’s stake in the acquiring companies.

(3) A member of a group of companies is to be treated as carrying on the activities of its group as one business.

(5) Non-resident companies qualify for inclusion in this section.

Relevant Date: Finance Act 2021