633A Formation of SE or SCE by merger – leaving assets in the State

Summary

This section sets out rules covering a situation where an SE or SCE is formed by a merger and, following the formation, assets remain in the State. The section provides for tax neutrality to apply where the assets transferred to an SE in the course of a merger to form an SE remain chargeable to tax in the State following the merger.

Details

Qualifying assets

(1) The meaning of a qualifying asset is set out. An asset will be regarded as a qualifying asset if the following conditions are met:

• (1)(a) the asset is transferred to an SE or SCE in the course of a merger forming that entity;
• either:
  • (1)(b)(i) the transferring entity is Irish tax resident at the time of the transfer, or
  • (1)(b)(ii) any gain on a disposal of the asset at the time of the merger would have been subject to capital gains tax;
  
  and
• either:
  • (1)(c)(i) the newly formed SE or SCE is Irish tax resident, or
  • (1)(c)(ii) any gain arising to the SE or SCE after it is formed would be subject to capital gains tax.

If an SE or SCE were not resident in the State, a gain on the disposal of an asset by it would be chargeable to capital gains tax under section 29 if, before the disposal, the assets were situated in the State and were used by the SE or SCE for the purposes of a trade carried on by it in the State through a branch or agency.

Company residence

(2) A company is treated for the purposes of this section as resident for tax in a Member State (other than Ireland) if it is so resident there for tax purposes and is not treated as being resident outside of the EU under a tax treaty entered into by its Member State of residence.

Application

(3) The circumstances in which the section applies are set out:

These are—

• (3)(a) either an SE of an SCE is formed by a merger under the SE Regulation or SCE Regulation as appropriate;
• (3)(b) each of the merging companies is resident in a Member State;
• (3)(c) the merging companies are not all tax resident in the same Member State (i.e. it is a cross-border merger); and
• (3)(d) tax neutrality is not already applied by virtue of section 615.

Capital gains tax

(4) Tax neutrality for capital gains purposes is provided for. Assets will be regarded as transferred for a consideration that will result in no gain or no loss to the transferring company. In the case of companies, certain capital gains are charged to capital gains tax. In other cases, the capital gain is calculated and an amount representing the gain is charged to corporation tax. The subsection covers both situations.

The consequences of applying the section are that the transferring company will have no taxable gains in respect of the transaction. However, when the SE or SCE eventually disposes of the asset, it will be taxed on the full gain calculated by referral to the transferring company’s cost and the eventual sale price by the SE or SCE.

Capital allowances

Tax neutrality in relation to capital allowances is provided for. Normally where a company disposes of an asset that qualifies for capital allowances, an adjustment is made by a balancing allowance or balancing charge to ensure that the overall amount of allowances made is appropriate. The subsection provides for tax neutrality so that no such adjustment is made on a transfer of an asset to an SE or SCE in the course of a merger.

(5)(a) The transfer of assets in the course of a merger is treated as not giving rise to a balancing allowance or charge

(5)(b) Capital allowances continue to be available so that the SE or SCE will obtain the capital allowances that would have been made to the transferring company if it had continued to use the assets and as if the SE or SCE had been carrying on the trade since the transferring company started to carry on the trade.

Relevant Date: Finance Act 2021