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FO 12: Financial arrangements: resident’s restricted amalgamation, companies in wholly-owned group
or “Rules for financial arrangements when closely related companies merge”
You could also call this:

“How financial arrangements are treated when companies merge without changing calculation methods”

This law applies when companies join together in a special way called a resident’s restricted amalgamation. It’s about how to handle financial arrangements when this happens.

If the way of working out income and spending from the financial arrangement doesn’t change after the companies join, and if another rule (section FO 12) doesn’t apply, then this is what happens:

The company that’s joining is treated as if it sold the financial arrangement. The new combined company is treated as if it bought the financial arrangement. They use the same amount of money for this pretend sale and purchase.

In the year the companies join:

The joining company must do a special calculation called a base price adjustment. This calculation is changed a bit to make sure it’s fair.

The new combined company gets some income or has some expenses. This is worked out to be fair between the old company and the new combined one.

The amount used for the pretend sale and purchase is chosen to make sure the income or expenses are split fairly between the old company and the new combined one. It’s based on what would have happened if the companies hadn’t joined.

The new combined company’s income or expenses are also worked out to be fair, based on what would have happened if the companies hadn’t joined.

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Next up: FO 14: Financial arrangements: resident’s restricted amalgamation, other cases

or “Rules for financial deals when companies merge in specific ways”
Next

Part F Recharacterisation of certain transactions
Amalgamation of companies

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

  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 method of calculating income and expenditure from the financial arrangement does not change after the amalgamation; and
    1. section FO 12 does not apply.

      1. The amalgamating company is treated as having disposed of the financial arrangement for consideration, and the amalgamated company is treated as having acquired the financial arrangement for that consideration.

      2. For the income year of the amalgamation,—

      3. the amalgamating company must calculate a base price adjustment under section EW 31 (Base price adjustment formula) as modified by subsection (4); and
        1. the amalgamated company has an amount of income or expenditure determined under subsection (5).

          1. For the income year of the amalgamation, the consideration for the disposal and acquisition of the financial arrangement is an amount that results in the base price adjustment for the amalgamating company under section EW 31 representing for the amalgamating company an allocation that is fair and reasonable, as between the amalgamating company and the amalgamated company, of the income or expenditure relating to the financial arrangement that the amalgamating company would have derived or incurred in the income year if the amalgamation had not taken place.

          2. For the income year of the amalgamation, the amalgamated company has an amount of income or expenditure that represents for the amalgamated company an allocation that is fair and reasonable, as between the amalgamating company and the amalgamated company, of the income or expenditure relating to the financial arrangement that the amalgamating company would have derived or incurred in the income year if the amalgamation had not taken place.

          Compare
          Notes
          • Section FO 13(2) heading: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on , by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
          • Section FO 13(2): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on , by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
          • Section FO 13(3) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on , by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
          • Section FO 13(3): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on , by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
          • Section FO 13(4) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on , by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
          • Section FO 13(4): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on , by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
          • Section FO 13(5) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on , by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
          • Section FO 13(5): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on , by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).