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FO 11: When property passes on amalgamation other than resident’s restricted amalgamation
or “Property transfer rules when companies merge in non-resident restricted amalgamations”
You could also call this:

“Rules for financial arrangements when closely related companies merge”

This section applies when a company joins with another company in a special way called a resident’s restricted amalgamation. It’s about what happens to financial arrangements when this occurs.

For this section to apply, a few things need to be true:

  1. The rules about financial arrangements must apply to the arrangement in question.
  2. For the whole year before joining, both companies must have been part of the same fully-owned group of companies.
  3. The way income and spending from the arrangement are calculated must not change after the joining, and the new combined company must report its income this way.
  4. Certain rules about tax losses can’t apply, except in some special cases.

If all these things are true, the new combined company can choose to use some special rules in its tax return.

If they choose to use these rules:

  1. It’s as if the old company was never part of the financial arrangement.
  2. The new combined company is treated as if it had always been the one in the arrangement. This includes things like when the arrangement started, how much was paid, what income was earned, what was spent, and what was reported in tax returns.

These rules help make it simpler when companies join together, so they don’t have to worry about complicated changes to their financial arrangements.

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Next up: FO 13: Financial arrangements: resident’s restricted amalgamation, calculation method unchanged

or “How financial arrangements are treated when companies merge without changing calculation methods”
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Part F Recharacterisation of certain transactions
Amalgamation of companies

FO 12Financial arrangements: resident’s restricted amalgamation, companies in wholly-owned group

  1. This section applies, despite sections EW 42 and GB 21 (which relate to non-market transfers of financial arrangements) in an income year in which the obligations that an amalgamating company has under a financial arrangement pass to the amalgamated company on a resident’s restricted amalgamation when,—

  2. the financial arrangements rules apply to the financial arrangement; and
    1. for the whole of the income year before the amalgamation, the amalgamating company and the amalgamated company were part of the same wholly-owned group of companies; and
      1. the method of calculating income and expenditure from the financial arrangement does not change after the amalgamation, and the amalgamated company’s return of income for the corresponding tax year is made on this basis; and
        1. sections IA 3 to IA 6 and subparts IB and ID (which relate to tax losses of companies and consolidated groups) do not apply to allow the amalgamating company to carry a loss balance forward from an earlier tax year for use in the tax year corresponding to the income year except if section IE 2 (Treatment of tax losses by amalgamating company) allows all tax losses included in the loss balance, and arising from earlier tax years, to be attributed to the amalgamated company as a tax loss.

          1. The amalgamated company may choose to apply subsections (3) and (4) in their return of income for the corresponding tax year.

          2. The amalgamating company is treated as if it had never been party to the financial arrangement. Section EW 31 (Base price adjustment formula) does not apply, in relation to the transfer of the financial arrangement or the obligations under it.

          3. The amalgamated company is treated as if it had taken the place of the amalgamating company in relation to the financial arrangement in terms of—

          4. the date the company entered into the arrangement; and
            1. the consideration paid; and
              1. the income derived; and
                1. the expenditure incurred; and
                  1. the returns of income provided.

                    Compare
                    Notes
                    • Section FO 12(1)(d): amended (with effect on 1 April 2020), on , by section 72(1) (and see section 72(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                    • Section FO 12(1)(d): amended (with effect on 1 April 2008 and applying for the 2008–09 and later tax years), on , by section 114(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                    • Section FO 12 list of defined terms consolidated group: repealed, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).