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Non-monetary capital contribution

  • 08-11-2016 11:51am
    #1
    Kopli
    Registered Users Posts: 5 ✭


    A private LTD is establishing a subsidiary LTD. We were hoping that part of the subsidiary share capital will be made up of a transfer of inventory from the Parent to the Subsidary (ie a non-monetary investment). My understanding of the procedure is that we should value the stock and come up with some kind of asset transfer agreement between the two entities.
    Couple of questions
      [ltr]
    • From the perspective of the Parent, does the asset transfer count as an output-VAT-liable transaction? It's not a sale per-se, but the idea of a 'transfer' undergirds VAT regulation, so I am not sure.
    • Is there a threshold above which an auditor is required to value the assets, or is it sufficient for the management board to make that determination? (Both are small companies
    • Should the assets be valued at lower of cost and NRV? (ie the standard accounting methodology)
    • I guess the accounting entries should be:
      [/ltr]
      • Parent: CR Stock DR Financial Assets (though if it is VAT liable then perhaps CR Income DR Financial Assets?)
      • Sub: Dr Stock CR Non-Monetary Share capital


Comments

  • #2
    dbran
    Registered Users, Registered Users 2 Posts: 2,094 ✭✭✭dbran


    There is no VAT on the sale or issue of shares so there should be no vat on the transfer.

    Should not be an auditor required here provided the company qualifies for the audit exemption in the normal way.

    Assets should be valued in the normal manner

    dbran


  • #3
    Marcusm
    Registered Users, Registered Users 2 Posts: 10,450 ✭✭✭✭Marcusm


    dbran wrote: »
    There is no VAT on the sale or issue of shares so there should be no vat on the transfer.

    Should not be an auditor required here provided the company qualifies for the audit exemption in the normal way.

    Assets should be valued in the normal manner

    dbran

    The transfer could very well constitute a supply of goods and thus a VAT liability might arise; especially as they will not have a clear VAT group if it's the initial transaction for the newco. Realistically, OP, you should seek professional advice.


  • #4
    exaisle
    Registered Users, Registered Users 2 Posts: 2,675 ✭✭✭exaisle


    This may shed some light but Marcusm is correct in saying that you should seek professional advice...

    http://www.revenue.ie/en/tax/vat/leaflets/transfer-business.html#section2


  • #5
    Kopli
    Registered Users Posts: 5 ✭Kopli


    Perfect, thanks all! This quote from exaisle's revenue link answers the question:
    '[font=Arial, Tahoma, Verdana, Helvetica, sans-serif]1.1[/font][font=Arial, Tahoma, Verdana, Helvetica, sans-serif] Section 20(2)(c) of the Value-Added Tax Consolidation Act 2010 (the VAT Act) provides that a transfer of ownership of goods, being the transfer to an accountable person of a totality of the assets or part thereof, of a business, even if that business or part thereof had ceased trading, where those transferred assets constitute an undertaking or part of an undertaking capable of being operated on an independent basis, is deemed not to be a supply for VAT purposes.'[/font]


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