CFM95390 - Interest restriction: groups, periods and financial statements: the worldwide group: business combinations

TIOPA10/S478

Some groups will be structured such that they are not headed by a single ultimate parent. This will often be the case where two groups merge but do not reorganise, resulting in two separate entities at the top of the structure with their own subsidiaries and separate shareholders. They then operate as a single economic enterprise and typically will have a shared board of directors and base dividend payments on the performance of the single merged group. Without specific provision, the rules would act to treat the merged group as two separate groups.

Deemed parent

S478 provides for entities which are treated under international accounting standards as a single economic entity by reason of being a business combination achieved by contract. Such entities will be treated as if they were consolidated subsidiaries of an ultimate parent (the ‘deemed parent’) and will therefore be included in the same worldwide group.

Example

Group A comprises an ultimate parent (A Ltd) and all its consolidated subsidiaries. It merges with Group Z which comprises an ultimate parent (Z Ltd) and its consolidated subsidiaries. There is no reorganisation as part of the merger so there is no entity above either A or Z although they are treated as a single economic activity because they are a business combination under international accounting standards.

A Ltd and Z Ltd are therefore treated as if a deemed parent owned both companies with the result that they will both be in the same worldwide group.