Article 39 - Transfer of Assets and Liabilities

Where an asset or liability has been acquired or disposed all of the following shall apply:

1. A disposing Constituent Entity shall take into account a gain or loss on disposal for the purposes of determining its Constituent Entity Income or Loss.

2. An acquiring Constituent Entity shall determine its Constituent Entity Income or Loss and Adjusted Covered Taxes on the basis of its carrying value of the acquired asset or liability determined under the Accounting Standard used for the purposes of determining the Constituent Entity's Financial Accounting Net Income or Loss.

Where the disposal or acquisition of assets and liabilities is part of a Reorganisation, Paragraph A of this Article shall not apply, and both of the following shall apply:

1. A disposing Constituent Entity shall exclude any gain or loss on the disposal for the purpose of determining its Constituent Entity Income or Loss.

2. An acquiring Constituent Entity shall determine its Constituent Entity Income or Loss after the acquisition on the basis of the disposing Entity's carrying value of the acquired assets and liabilities at the time of the disposal.

Where a disposal or acquisition of assets and liabilities is part of a Reorganisation in which a disposing Constituent Entity recognises a Non-qualifying Gain or Loss, Paragraphs A and B of this Article shall not apply, and both of the following shall apply:

1. A disposing Constituent Entity shall take into account a gain or loss on the disposal for the purposes of determining its Constituent Entity Income or Loss to the extent of the Non-qualifying Gain or Loss.

2. An acquiring Entity shall determine its Constituent Entity Income or Loss after the acquisition based on the carrying value of the acquired assets and liabilities from the disposing Entity at the time of disposal. The Constituent Entity Income or Loss shall be adjusted in accordance with the applicable tax rules in the jurisdiction where the acquiring Constituent Entity is located to account for the Non-qualifying Gain or Loss.

For the purposes of applying the provisions of Paragraphs B and C of this Article, a Reorganisation means a transformation or transfer of assets and liabilities such as in a merger, demerger, liquidation or similar transaction where Clauses 1, 2 and 3 of this Paragraph apply:

1. The consideration received in exchange for the transfer of assets and liabilities meets any of the following conditions:

   1. The consideration is in whole or in significant part, equity interests issued by the acquiring Constituent Entity or by another person related to the acquiring Constituent Entity.

   2. In a liquidation, the consideration is the cancellation of the holding of the equity interests of the Entity being liquidated.

   3. The consideration is nil and the issuance of an equity interest would have no economic significance.

2. The disposing Constituent Entity's gain or loss on those assets and liabilities is not subject to income taxes, in whole or in part.

3. The tax laws of the jurisdiction in which the acquiring Constituent Entity is located require the acquiring Constituent Entity to calculate Taxable Profit or Loss after the disposal or acquisition using the disposing Constituent Entity's value of the assets for tax purposes under the tax laws of the jurisdiction in which the disposing Constituent Entity is located at the date of the transfer, adjusted for any Non-qualifying Gain or Loss on the disposal or acquisition.

For the purposes of applying the provisions of Paragraphs C and D of this Article, a Non-qualifying Gain or Loss means the lesser of:

1. The gain or loss of the disposing Constituent Entity arising in connection with a Reorganisation that is subject to tax in the disposing Constituent Entity's location.

2. The gain or loss arising in connection with the Reorganisation recorded in the disposing Constituent Entity's Financial Accounting Net Income or Loss.

Where the acquiring Constituent Entity is located in the Kingdom at the time of the transformation or transfer of assets and liabilities such as in a merger, demerger, liquidation or similar transaction, that Constituent Entity shall be deemed to have met the requirements of Clause 3 of Paragraph D of this Article.

At the election of the Filing Constituent Entity, a Constituent Entity that is required or permitted to adjust the tax basis of its assets and the amount of its liabilities to fair value for tax purposes in the jurisdiction in which it is located, shall apply all of the following:

1. The Constituent Entity shall take into account an amount of gain or loss in respect of each of its assets and liabilities for the purposes of determining its Constituent Entity Income or Loss for a Fiscal Year.

2. The Constituent Entity shall use the fair value for financial accounting purposes of the asset or liability immediately after the event that triggered the tax adjustment for the purposes of determining its Constituent Entity Income or Loss.

For the purposes of applying the provisions of Clause 1 of Paragraph G of this Article, the amount of the gain or loss in respect of each asset or liability shall be equal to both of the following:

1. The difference between the carrying value of the asset or liability immediately before the event that triggered the tax adjustment and the fair value of the asset or liability immediately after the event as determined under the applicable tax law in the jurisdiction where it is located.

2. Decreased or increased as the case may be, by the Non-qualifying Gain or Loss, if any, arising in connection with the triggering event.

Where an election is made under Paragraph G of this Article, a Constituent Entity shall apply either of the following:

1. The Constituent Entity shall take into account the net total of the amounts determined in accordance with Paragraph G of this Article for the purposes of determining its Constituent Entity Income or Loss in the Fiscal Year in which the event that triggered the tax adjustment occurs.

2. The Constituent Entity shall take into account the net total of the amounts determined in accordance with Paragraph G of this Article divided by five for the purposes of determining its Constituent Entity Income or Loss in the Fiscal Year in which the event that triggered the tax adjustment occurs and in each of the immediate four subsequent Fiscal Years.

Where a Constituent Entity applies Clause 2 of Paragraph I of this Article and subsequently leaves the Multinational Enterprise Group within the five-year period, the Constituent Entity shall take into account the remaining amount for the purposes of determining its Constituent Entity Income or Loss in the Fiscal Year in which it leaves the Multinational Enterprise Group.