The operational effects of the Mergers Directive are as follows.

Unrealised gains

No tax may be levied on the capital gain arising from a merger or division. In each case, the domestic law of the member state is to be applied in determining the gain or loss in respect of the disposition of the assets.114 In order to qualify, the assets and liabilities transferred must be effectively connected with a permanent establishment of the receiving company in a member state where the transferring company is located following the transfer. The assets so transferred must also be used in generating income for tax purposes.115

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