Topic: Law of business taxation questions and answers assignment

Question 1

You are the senior tax partner of Gros & Chat LLP chartered accountants and you have been contacted by Desmond Dupont, the Finance Director of Jalibert Industries Plc (‘JI Plc’).  Desmond explains that his group wishes to sell a wholly owned subsidiary company, JI Projects Limited for £30 million – it has a base cost of £6 million so that the group will make a capital gain of £24 million.  Desmond believes that it may be possible to reduce the possible tax charge by transferring a major asset of JI Projects Limited, a large processing plant, to JI Plc for £3 million (it has a base cost of £6 million and a market value of £12 million).  Desmond considers that after the transfer of the processing plant the shares in JI Projects Limited will only be worth £21 million (after the £12 million asset has been exchanged for only £3 million of cash) so the taxable gain on the disposal of the company will be £15 million.  Desmond also points out that when JI Plc sells the processing plant for £12 million the gain will be £6 million so that the total gain will be £21 million (after including the £15 million gain on the sale of JI Projects Limited).  Desmond is not sure whether this is a good ‘tax planning’ opportunity or whether it might be subject to anti-avoidance rules.  Desmond has also been considering the possibility of an acquisition by JI Plc of a company that is known to have unused capital losses – he believes this might be a good way to mitigate the group’s tax liabilities in the near future.

Required:

  1. Write a letter to Desmond Dupont, Finance Director of Jalibert Industries Plc critically analysing the tax rules in relation to depreciatory transactions, value shifting and the ring fencing provisions and explaining how they may have implications for Desmond’s tax planning proposals.
  1. Desmond has also asked you (as a separate exercise that should be answered in the second part of your letter to Desmond) to explain how the tax system treats inflation at both company level and individual level.  Critically analyse the shortcomings of capital gains tax law in relation to possible future inflation levels.  Please refer to recent UK tax law history to help in your answer.

Question 2

You are a tax partner in the accountancy firm of Parry & Davies LLP.  You are approached by Lana Le Roux whois the Managing Director of a successful advertising company,Alldritt Advertising Plc.  The shares in the company are currently owned by several institutional investors including pension funds with the balance largely in the hands of the family of the company founders who are not interested in maintaining involvement in the future.  Lana feels that the company will be in a better position if it is ‘taken private’.  In view of this she has put together an MBO team including several other board members such as the finance director, production director and sales director to acquire a controlling interest in the business from the other shareholders.  

The other shareholders have now agreed a price which is acceptable to Lana and her MBO team.  A special purpose vehicle company, SPVCo Ltdwill be formedLana will own 50% of the shares and four other directors will own 12.5% each.  SPVCo Ltdwill then acquire all the ordinary shares of Alldritt Advertising PlcThe 100% shareholding will cost£100 millionand a major investment bank has agreed to lend£60 millionto SPVCo Ltd with security over the Alldritt Advertising Plc shares.

Required:

Lana has asked you, as her tax adviser, to help her to understand the tax position:

  1. From her own point of view as an employee/director becoming part of the management buy-out and;
  1. From the company’s point of view.

Please write a letter in which you explain and critically analyse the main reliefs and matters that Lana should consider at this time.

Question 3

Holmes Group Plcis a major UK supermarket group.  After a ten year period of expansion the group is now reviewing its tax position in relation to its European businesses. The group has stores in Germany, Belgium, the Netherlands and Luxembourg that have been run by Holmes Group’s 100 per cent subsidiaries established in each of those countries.  Unfortunately, these stores have all made losses in the three years since they were opened.

Holmes Group Plc has also established a joint venture business that is a ‘do-it- yourself’ hardware retailer, Hardware-4-U Ltd.  Holmes Group Plcowns 75 per centof the shares in Hardware-4-U Ltd and the balance of 25 per cent is owned by a Dutch company, Van der Merwe NV, which also has a cross option agreement permitting it to acquire5 per centof the share capital in Hardware-4-U Limited after 5 years.

Required:

  1. Consider and critically appraise the prospects of Holmes Group Plc successfully making a group relief claim in respect of the losses of the subsidiaries in Germany and the “Benelux” countries.
  1. Critically evaluate the structure of the Hardware-4-U Ltd joint venture and assess the chances of successfully claiming group relief for Corporation Tax purposes. 

Type of service: Academic paper writing

Type of assignment: Essay

Subject: Accounting

Pages/words: 9/2400

Academic level: Undergraduate

Paper format: Harvard

Line spacing: Double

Language style: UK English

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