Our client used a new company to purchase a trading entity 10 years ago. The hive-up of the trade never happened due to lease, IP and trade VAT and TUPE implications which the client wanted to deal with at a later time.
Now, the client is comfortable that the subsidiary does not have any unknown liabilities and wants to simplify the group by removing the dormant parent company.
The only assets / liabilities in the parent are the investment value, and an intercompany balance (and small distributable reserves).
In order to strip out the parent company
1) Is clearance required for the transfer of the shares?
2) Are there other tax implications to be aware of (intercompany write offs needing formal agreement?)
3) In terms of accounting entries in subsid, the intercompany balance will disappear and presumably be replaced by Goodwill?
4) Are the distributable reserves of parent transferred to the distributable reserves of subsid, or used to reduce the current investment value (which becomes goodwill)?
Many thanks for guidance.
J
Replies (4)
Please login or register to join the discussion.
Before he goes down this route I think your client needs to be advised of the pros and cons of doing it as opposed to the obvious alternative of hiving up the trade and assets and getting rid of the subsidiary. Has he been so advised and, if so, what is his rationale for the choice he has made?
How are you proposing to get rid of the parent? It is not a simple process and specialist tax advice is needed to avoid it being taxed as a distribution etc. In case not obvious, the subsidiary cannot acquire any of its parent's shares per s136 CA 2006.