Business combinations under common control

Date recorded:

Business Combination under Common Control — Scope of the Project — Agenda paper 23


In June 2014, the Board tentatively decided that the BCUCC project should consider:

  1. BCUCCs that are currently excluded from the scope of IFRS 3;
  2. group restructurings; and
  3. the need to clarify the description of BCUCC, including what is meant by ‘common control’.

In this paper, the Staff considered whether group restructurings that do not constitute business combinations should be covered by the scope of the project. The Staff plan to discuss other interpretation issues arising from a) and c) above in future meetings.

Staff analysis

Group restructuring is not a defined term. Broadly speaking, a group restructuring occurs when the relationships between entities within a group change without an overall change in the ultimate controlling party of the individual entities. However, not all group restructuring transactions meet the definition of a business combination. For example, interspersing a shell company (Newco) between a parent (Parent) and its previously directly-held subsidiary (Sub):

  • Newco acquires control of the Sub by issuing shares to Parent.
  • Newco is not a business. Sub is a business as defined.
  • Applying the guidance in IFRS 3.B15-B18, Newco would not be identified as the acquirer. Sub also does not meet the definition of an acquirer because it does not obtain control of a business (as Newco is not a business as defined).

This and other types of non-business combination transactions are common in group restructurings. Even though they do not meet the description of business combination under common control, they involve the transfer of a business between entities under common control and such transactions are not covered by existing Standards. Accordingly, the Staff believed that such transactions should be covered by the scope of the BCUCC project.

Staff recommendation

The Staff recommended that the Board include within the scope of the BCUCC project transactions under common control in which the reporting entity (Newco in the above example) obtains control of one or more businesses, regardless of whether IFRS 3 would identify the reporting entity as the acquirer.


The Board approved the Staff recommendation.

One Board member emphasised that the scope of the project should cover all transactions that are currently excluded from the scope of IFRS 3 due to their being transactions under common control. The Staff agreed with this observation and further noted that transactions that are regarded by some people as being outside the scope of other Standards, e.g. acquisitions of associates from an entity under common control are viewed by some people as being outside the scope of IAS 28 (see AP 5F to the September 2017 IFRIC meeting), would be outside the scope of the BCUCC project.

The Staff also reiterated that transactions that are currently covered by existing Standards would not form part of the scope of the project, e.g. Parent (in the above example) would account for the group reorganisation in its consolidated financial statements in terms of IFRS 10 and this accounting would not be affected by the decisions made under the BCUCC project. The Vice-Chair suggested making this clear in the DP and asked the Board to look for opportunities where they could provide educational guidance on how to apply existing standards on business or entity combinations, especially where there is diversity in practice. This guidance could be included in the DP or in separate educational materials as appropriate.

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