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
2
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
3
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
4
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
Holdings Ltd
Subsidiary Ltd
(2 separate trades)
Corporate structure
after restructuring
• Holdings Ltd now
owns 2 trading
subsidiaries each
holding its own trade
Holdings Ltd
Deliveries Ltd
Printing Ltd
5
Example 2 – amalgamation involving change in
owners
Corporate structure before
amalgamation
Corporate structure after
amalgamation
• Holding Ltd and Subsidiary Ltd are 2 • The shareholders in subsidiary Ltd
separate companies but Holding Ltd
are now shareholders in Holding Ltd
wants to acquire Subsidiary Ltd
Shareholders
Shareholders - Adam and Alex
Adam Alex Ann Mary
Holding Ltd
Holding Ltd
Shareholders - Ann and Mary
Subsidiary Ltd
Subsidiary Ltd
6
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
7
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
9
AMALGAMATION BY EXCHANGE
OF SHARES
10
Amalgamations
Can take the following form
1. Share for share exchange
2. Share for undertaking
11
1. Share for share exchange
• 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
12
1. Share for share exchange
Before amalgamation
Shareholders - Adam and Alex
Apple Ltd
(Acquiring)
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 Ltd
Shareholders
Adam Alex Ann Mary
Shareholders - Ann and Mary
Pie Ltd
(Target)
Apple Ltd
13
Apple Ltd wants to acquire Pie Ltd
Pie Ltd
1. Share for share exchange
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
14
1. Share for share exchange
CGT 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
15
1. Share for share exchange
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
16
1. Share for share exchange
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
1. Share for share exchange
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
18
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 cash
19
2. Share for undertaking
(1 target company)
Before amalgamation
Shareholders - Adam and Alex
Bread Ltd
(Acquiring)
After amalgamation
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 Ltd
Shareholders
Adam Alex Ann Mary
Shareholders - Ann and Mary
Butter Ltd
(Target)
Bread Ltd
(Trade of Bread & Butter
Ltd)
20
Bread Ltd wants to acquire Butter Ltd’s
trade (i.e. undertaking)
2. Share for undertaking
(2 target companies)
Before amalgamation
Shareholders - Adam and Alex
Salt Ltd
(Target)
After amalgamation
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.
Shareholders - Ann and Mary
Vinegar Ltd
(Target)
Shareholders
Adam Alex Ann Mary
NewCo
(Trade of Salt & Vinegar Ltd)
21
Salt Ltd and Vinegar Ltd want to transfer
their trades into a new company (NewCo)
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%
22
2. Share for undertaking
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
23
2. Share for undertaking
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
24
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
25