Corporate transactions often require changes to the structure of a business for legal or tax purposes. The process, known as corporate restructuring, takes many forms.
Transations that invovle corporate restructuring include:-
Holding companies provide robust asset-protection benefits to large and SME business owners.
The classic reason for establishing a holding company is protection from employee claims, creditors and The Revenue. As the corona virus pandemic unfolds, protecting business reserves from depletion during periods of economic uncertainty is vital.
Holding company structures enable retained earnings to be held separately from trading entities without impacting corporate liquidity and without tax leakage.
Asset protection is often achieved by inserting a holding company to hold separate from the main trade key assets (such as property) or surplus reserves.
Expaning a business into a new jurisdiction, market or industry usually usually requires a different legal structure.
When expanding into a new jurisdiction, issues to consider include whether to establish a 'branch', 'subsidiary' or other legal form; movement of funds and exposure to withholding taxes on interest, royalties, dividends and other capital movements; operation of VAT (having a single or multiple VAT obligations).
Having a branch can be advantageous if the new venture is not expected to 'break-even' in the initial periods. Having a subsidiary is usually advantageous for banking and other commercial reasons and provides compartmentation for accounting and tax management.
Tax mitigation is the term for structuring a business (large or small) to shelter taxable earnings from corporation tax in Ireland and elsewhere.
Reducing group corporation tax is achieved through permanent establishment management, management charges, inter-group financing structures, "cost plus" and other contractual arrangements for group transactions and licenses for the use of IP.
These, and other, strategies require knowledge of an evolving range of global tax considerations including transfer pricing.
Tax law in Ireland applies transfer pricing/arm's length principles to transactions between related parties. Supplies must be priced at market rates and in accordance with OECD guidelines.
It may be advantageous to restructure a business where a sale of all or part of it is contemplated.
Purchasers may be reluctant to acquire the existing company and with it legal responsibility for historic tax, employee, commerical and other potential claims. The solution is to transfer the business to a new company before the sale.
From a seller's perspective, a business sale can be structured to access zero-rate CGT treatment and provide a return to shareholders at 10% with a tiered income distribution arrangement ("TIDA").
In other situations a "transfer of undertaking" will be used to separate business from investment holdings (for gift and inheritance tax planning), to partition two or more businesses, to enable corporate asset protection and .
A management buyout ("MBO") occurs when management acquire a majority or significant minority interest in a company.
The tax landscape for MBOs is complex due to "Anti-Avoidance" measures targetted at 'close companies'.
Tax law imposes income tax (at rates up to 50%) on proceeds recieved by the selling shareholder instead of CGT. Apart from the higher rate of tax, this restricts shareholders from accessing favourable tax treatment.
The impact of the measures can be mitigated or avoided with appropriate corporate restructuring and planning.
An employee share scheme is a way of sharing company ownership to incentivise and retain key individuals.
Shares schemes come in many shapes and sizes from those designed for large groups of employees, for listed companies, to those designed for the benefit or one or more key inviduals.
Whichever scheme is envisaged, a change to the corporation structure is likely. This could be to introduce membership classes with differing rights, or to plug individuals into the group structure at different levels.
For example, businesses which trade in multiple jurisdictions or that have multiple products and services, may wish to link the return on investment given to that territory or product line.
These commercial objectives are easily achieved with the right legal structure.