Irish company law has recently introduced legislation facilitating the cross border merger of an Irish limited liability company with a limited liability company in the European Economic Area. The Irish taxation treatment of cross border mergers has, for quite some time, been provided for in Irish tax legislation and so the addition of the company law machinery to facilitate such transactions is a much welcome development.
Whilst the existing provisions in Irish domestic tax law apply to certain cross border mergers including, for example, the transfer of an Irish trade to a successor company, they do not specifically deal with all possible types of cross border mergers as detailed in the new company law provisions, namely:
- merger by acquisition
- merger by formation of a new company
- merger by absorption
The lack of specific references in our tax code is likely a function of the fact that Ireland’s implementation of Council Directive No.90/434/EEC (“Merger Directive”) within our tax code pre-dated the Irish company law legislation on cross border mergers.
Importantly, however, the Irish tax legislation implementing the Merger Directive does provide that where a transaction is covered by the Merger Directive but is not specifically relieved in Irish tax law, an application for relief may be made to Irish Revenue. Section 637 of the Taxes Consolidation Act 1997 provides that:
“The Revenue.. may, on application being made to them…, in respect of a transaction of a type specified in the [Merger] Directive…, give such relief as it appears to them to be just and reasonable for the purposes of giving effect to the [Merger] Directive”.
In considering such an application Irish Revenue will no doubt look at the overriding principles of the Merger Directive and existing Irish tax legislation. Broadly, the Merger Directive envisages that assets would transfer at no gain/no loss and provisions/losses would be carried forward in the successor company.
Since the implementation of the Irish company law mechanic facilitating cross border mergers we have seen a steady flow of interest in this new form of corporate merger and we are involved in a number of cross border merger transactions currently being effected. Existing Irish tax legislation, together with the ability to apply to Irish Revenue in those cases that are not specifically covered by existing tax legislation, will allow cross border mergers to be effected in Ireland in a tax efficient manner in line with the objectives of the Merger Directive.