Cash and Tax free acquisition of Equity ?
Can anyone advise on any tax implications? All companies and people described here are UK based.
Company A owns 100% shares in Company B. Company A wants to sell a large % of shares in Company B to Company C which is owned by several employees of Company B. As Company C and its shareholders cannot pay for the value of shares, Company A will grant Company C an interest bearing loan on the value of shares for a period of several years. Say a year later, Company B pays dividends to Company A and Company C. The dividend income comes with the tax credit so corporation tax free. Now Company C has money to repay part of the loan and interest to Company A. The system will continues until the loan with interest is fully repaid. Effectively, Company C would have acquired shares in Company B without paying for it. Would this system be caught by any tax legislations on Company C and its shareholders, ie. employees of Company B?
Many thanks for your opinion and advice.
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