Revision Company Reorganisations & Amalgamations Professional 2 Examination – Advanced Taxation...

Revision Company Reorganisations & Amalgamations

Professional 2 Examination – Advanced Taxation

August 2013

Learning outcomes of this webinar

At the end of this webinar you should

• Understand why companies may decide to reorganise

• Know the taxes you need to consider when a reorganisation/amalgamation is taking place

• Understand the mechanics of a ‘share for share exchange’ & the tax reliefs available

• Understand the mechanics of a ‘share for undertaking’ & the tax reliefs available

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Reasons for a company reorganisation/amalgamations• Many commercial, business, legal and tax reasons e.g.

1. For the acquisition of a new business

2. To remove unnecessary companies from a group structure

3. To split a group of companies – shareholder’s dispute

4. To set up a holding company structure

5. To separate a long trading business from new more risky ventures

6. To merge 2 companies into 1

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Reorganisations

• Typically involve the transfer of either the shares or the trade/assets of a company

Typical outcomes of a reorganisation• Exchange of old shares for new shares• Exchange of old shares for new shares plus

consideration• Amalgamation of trades

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Example 1-Reorg no change in owners

Corporate structure before restructuring

• Subsidiary Ltd has 2 separate trades, a delivery service trade and a printing trade

Corporate structure after restructuring

• Holdings Ltd now owns 2 trading subsidiaries each holding its own trade

Holdings Ltd

Subsidiary Ltd(2 separate trades)

Holdings Ltd

Deliveries Ltd Printing Ltd

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Corporate structure before amalgamation

Corporate structure after amalgamation

• Holding Ltd and Subsidiary Ltd are 2 separate companies but Holding Ltd wants to acquire Subsidiary Ltd

Shareholders - Adam and Alex

Shareholders - Ann and Mary

Holding Ltd

Subsidiary Ltd

Shareholders Adam Alex Ann Mary

Holding Ltd

Subsidiary Ltd

Example 2 – amalgamation involving change in owners

• The shareholders in subsidiary Ltd are now shareholders in Holding Ltd

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Taxes to consider in a reorganisation /amalgamation

• CT (on transfer of assets)• Capital Gains Tax (CGT) reliefs (detailed in later slides)• Market value for connected parties

• Capital allowances• Assets transferred at tax written down value so no balancing

charge event – s312 Tax Consolidation Act (TCA) 1997

• Losses forward• Consider s401 TCA 1997 restriction

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Taxes to consider in a reorganisation

• Stamp duty (SD)• 1% on shares• 2% on commercial assets• SD relief may be available (relief detailed in later slides)

• VAT• Same VAT group – no VAT charge• ‘Transfer of business as going concern’ – no VAT• Otherwise, VAT chargeable by transferor

• CGT for shareholders (relief detailed in later slides)8

Tax reliefs – reorg/amalgamations

• CGT for shareholders – S586-587 TCA 1997

• CGT for company – S615 TCA 1997

• SD – S80 Stamp Duty Consolidation Act (SDCA) 1999

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AMALGAMATION BY EXCHANGE OF SHARES

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Amalgamations

Can take the following form

1. Share for share exchange

2. Share for undertaking

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• Shareholder exchanges shares in one company for shares in another

• Shareholders in 1 company (target company) exchange their shareholding for shares in another company (acquiring company)

• Result of such as an exchange is that the target company becomes directly owned by the acquiring company

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Before amalgamation After amalgamation

Apple Ltd acquires Pie Ltd by issuing additional shares in Apple Ltd to the shareholders in Pie Ltd in exchange for their shares in Pie LtdApple Ltd

(Acquiring)



Pie Ltd(Target)

Apple Ltd wants to acquire Pie Ltd

Apple Ltd

Pie Ltd


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Taxes to be considered• CGT for the shareholders of the target company• Stamp duty for the acquiring company – 1% on the value

of the share

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1. Share for share exchangeCGT relief for shareholders – s586 TCA 1997

Conditions of relief

1. The exchange is for bona fide commercial reasons and does not form part of an arrangement, the main purpose of which is tax avoidance

2. Acquiring company must gain control of the target company

3. Acquiring company must retain beneficial ownership of the shares in the target company for at least 2 years

4. Acquiring company must be registered in Ireland or EU

5. Target company may be registered anywhere in world

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CGT relief for shareholders – s586 TCA 1997• New shares have same base cost and acquisition date

as original shares• If consideration received in addition to new shares – part

disposal

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Stamp duty relief for the acquiring company – s80 SDCA 1999• Conditions

• The reconstruction/amalgamation must be effected for bona fide commercial reasons and should not form part of any arrangement, the main purpose of which is tax avoidance

• Acquiring company must obtain at least 90% of the issued share capital of the target company

• The consideration for the acquisition, excluding liabilities of the target company taken over, must be paid by way of at least 90% in the issue of new shares in the acquiring company to the shareholders of the target company. Balance of consideration may be in cash 17


Stamp duty relief for the acquiring company – s80 SDCA 1999• Conditions

• The acquiring company must issue shares to the shareholders of the target company in proportion to their shareholdings in the target company

• Clawback will arise if the acquiring company does not retain beneficial ownership of all the shares in the target company for at least 2 years

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2. Share for undertaking• Amalgamation involves the target company/companies,

the acquiring company and the shareholders of the target company/companies• 1 target company – target company transfers all or part of

its business/trade to another company (acquiring company) in exchange for shares in that company being issued to the shareholders of the target company

• 2 target companies - target companies transfer all or part of their business/trade to another company (acquiring company) in exchange for shares in that company being issued to the shareholders of the target companies. The acquiring company may be a new company incorporated to acquire the trades

• The target company/companies do not receive any cash19

2. Share for undertaking (1 target company)


Bread Ltd acquires Butter Ltd’s trade by issuing additional shares in Bread Ltd to the shareholders in Butter Ltd in exchange for their shares in Butter LtdBread Ltd

(Acquiring)



Butter Ltd(Target)

Bread Ltd wants to acquire Butter Ltd’s trade (i.e. undertaking)

Bread Ltd(Trade of Bread & Butter

Ltd)


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NewCo issues shares to the shareholders of Salt Ltd and Vinegar Ltd, in exchange for the transfer of Salt Ltd’s and Vinegar Ltd’s trade (including all assets & liabilities) to NewCo.

Salt Ltd(Target)



Vinegar Ltd(Target)

Salt Ltd and Vinegar Ltd want to transfer their trades into a new company (NewCo)


NewCo(Trade of Salt & Vinegar Ltd)

2. Share for undertaking (2 target companies)

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Share for undertaking

Taxes to be considered

1. CGT at company level for target company/companies – as the disposal of a target company’s business/undertaking is a disposal for the company itself

2. CGT at shareholder level - for the shareholders of the target company/companies

3. Stamp duty for the acquiring company on the transfer of the undertaking – 2%

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CGT relief for shareholders - S587 TCA 1997• Share for undertaking can qualify for CGT relief –

transfer is part of a scheme for amalgamation• Shares in acquiring company are issued to shareholders

in proportion to their existing shareholdings in the target company/companies

• Relief will only apply if the transaction is for bona fide commercial reasons and not part of a tax avoidance scheme

• New holding will be treated in the hands of the shareholders as if it were the original holding

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Tax relief for target company/companies chargeable gains - S615 TCA 1997• No gain/no loss position on the transfer of chargeable assets

such as goodwill and property to the acquiring company• Conditions

• The amalgamation/reconstruction must be for bona fide commercial reasons and does not form part of a scheme of tax avoidance

• The amalgamation/reconstruction must involve the transfer of whole/part of a company’s business to another company

• Both companies must resident in the state/EU member state with which Ireland has a double taxation agreement

• The target company must have received no consideration for the transfer other than the taking over of its liabilities by the acquiring company

• No clawback provisions

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SD relief for acquiring company

• S80 SDCA 1999 – relief is available for the transfer of assets from the target company/companies to the acquiring company where consideration for the transfer consists of shares in the acquiring company

• Conditions• Assets transferred must constitute an undertaking or part of

an undertaking• At least 90% of the consideration (apart from any liabilities

of the target company which are taken over) provided by the acquiring company must consist of its own shares

• No minimum holding period for shareholders after the swap

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