I have a client that is a holding company for various subsidiaries. There is no revenue generated within this entity, its only activity is investing in its subsidiaries.
The client has its own ultimate parent who is gifting the client large sum of money unconditionally with no intention by either parties for it to be repaid, nor any shares received in exchange. This all points to capital contribution reserve. The money will be used by the client to invest in its own subsidiaries.
My question is what are the tax implications, if any, of this money received? I read somewhere that there is a risk that capital contributions can be taxed as trading income in the hands of the recipient if its a trading company. Does investing in its subsidiaries fall into that?
If there is a tax liability, how is that any different to the client & its parent claiming for it to be an intercompany loan instead and subsequently write off in a few years, given it would then be tax nothing?
Many thanks in advance for all your help.