AITI Part 3 Assignment

taxstudent101

Hello everyone,

For the most recent part 3 assignment (boyle sauces), how have you treated the employee shares?

finding it a bit confusing

thank you for any help in advance

taxstudent101

Maureen would like to reward two key employees (Ann Smith and Barry Doe) in Boyle Sauces and after lengthy negotiations it was decided that Boyle Sauces will allot Ann and Barry shares in the company so that they will each own 2.5% of the Boyle Sauces. Ann and Barry specifically stated that they were not interested in share options or any other type of share option scheme as they want to own the shares immediately. Maureen would like the fact that she is allotting shares in the company to be hidden from other employees and would also like to prevent Ann and Barry from selling their shares for at least five years. Ann and Barry are unable to pay for their shares at this time and they do not have money to pay the potential tax liability arising on the allotment of the shares to them in Boyle Sauces.

thegolfer

S.128D or S.128E...

crebel81

taxstudent101 wrote: »

Maureen would like to reward two key employees (Ann Smith and Barry Doe) in Boyle Sauces and after lengthy negotiations it was decided that Boyle Sauces will allot Ann and Barry shares in the company so that they will each own 2.5% of the Boyle Sauces. Ann and Barry specifically stated that they were not interested in share options or any other type of share option scheme as they want to own the shares immediately. Maureen would like the fact that she is allotting shares in the company to be hidden from other employees and would also like to prevent Ann and Barry from selling their shares for at least five years. Ann and Barry are unable to pay for their shares at this time and they do not have money to pay the potential tax liability arising on the allotment of the shares to them in Boyle Sauces.

Im doing this assignment too and advised using restricted shares - S.128D

taxstudent101

Thanks for your replies and happy Christmas.

Out of interest, if you are going with S128D, what did you put at the market value of shares and the consideration paid?

crebel81

taxstudent101 wrote: »

Thanks for your replies and happy Christmas.

Out of interest, if you are going with S128D, what did you put at the market value of shares and the consideration paid?

To be honest I have only dealt with the sale of jacks shares and the acquisition of gluten mania up to now. Haven't done anything in depth on the restricted shares yet.

Current value is 20m but because they have a minority shareholding I presume we should mention that these shares may have a reduced value because of this.

taxstudent101

crebel81 wrote: »

To be honest I have only dealt with the sale of jacks shares and the acquisition of gluten mania up to now. Haven't done anything in depth on the restricted shares yet.

Current value is 20m but because they have a minority shareholding I presume we should mention that these shares may have a reduced value because of this.

finding it a definite step up from part 2. the layout appears to have changed from other years too, so many different elements in it. I still have alot to do so need to focus on it for the next few days and get it wrapped up in time.

MarGar

Yes it is definitely a step up from Part 2. There is just so much going on. What are people finding the most important areas in the case study?

taxstudent101

MarGar wrote: »

Yes it is definitely a step up from Part 2. There is just so much going on. What are people finding the most important areas in the case study?

I just took each part separately and provided advice. Theres about 5/6 different items which have no or very little linkage, in my opinion. Comparing to prior years and the case study day we had, there is no 1 large theme throughout

Were there any parts that you found difficult or confusing?

MarGar

I found the first part of Jack selling his part of Boyle Sauces and reinvesting the money he received into his family law practice. Other than that I think the purchases of fixed assets, the VAT on the UK suppliers and rewarding the employees OK to deal with. In saying that I probably left something out.

How did you treat Jacks sale of his shares in Boyle Sauces?

crebel81

MarGar wrote: »

I found the first part of Jack selling his part of Boyle Sauces and reinvesting the money he received into his family law practice. Other than that I think the purchases of fixed assets, the VAT on the UK suppliers and rewarding the employees OK to deal with. In saying that I probably left something out.

How did you treat Jacks sale of his shares in Boyle Sauces?

It is a case really of dealing with the facts as they are presented and going through the tax issues. I stated that he is tax resident in ireland under the oecd convention and will be liable to cgt. He won't qualify for any reliefs.

For the vat part, is it no loss of revenue which is being claimed or can they make a self correction for the understated Vat in the last 12 months?

taxstudent101

crebel81 wrote: »

It is a case really of dealing with the facts as they are presented and going through the tax issues. I stated that he is tax resident in ireland under the oecd convention and will be liable to cgt. He won't qualify for any reliefs.

For the vat part, is it no loss of revenue which is being claimed or can they make a self correction for the understated Vat in the last 12 months?

Agreed. Put as Irish resident and liable to cgt on gain, no reliefs. And went with No loss of revenue for VAT part.

1) Any stamp duty element? Understand there would be for Sarah on purpose of the shares but not asked for her tax implications.
2) Also, is action plan the same as step plan that features in Part2 assignments?

MarGar

With the VAT - it might not be any loss to the Revenue but I would comment on the need for filing an Intrastat. I'm thinking that is why they are telling us that the purchase of raw material was €600K (annual threshold €500K) Failure to file can give rise to a penalty of €4k

Atrema130

Hi guys. Just wondering if ye had dealt with Gluten Mania and paying Boyle Sauces the dividends? Are they treated as 'recovery of capital' under s249?

taxstudent101

Atrema130 wrote: »

Hi guys. Just wondering if ye had dealt with Gluten Mania and paying Boyle Sauces the dividends? Are they treated as 'recovery of capital' under s249?

I stated that deemed recovery would not apply as they are already repaying the capital element of the loan. If they were to use the dividend for anything else, then it would be a deemed recovery.

Atrema130

I am also wondering if the VAT part is more complicated than originally thought. I was told by someone that Boyle could set up a holding company and use the CIBO case to gain the VAT back on the professional fees of the acq of Gluten Mania. Just wondering if people are going into this depth?

taxstudent101

Atrema130 wrote: »

I am also wondering if the VAT part is more complicated than originally thought. I was told by someone that Boyle could set up a holding company and use the CIBO case to gain the VAT back on the professional fees of the acq of Gluten Mania. Just wondering if people are going into this depth?

I really don't think we should be going into that depth anyway. I have only dealt with what is being asked and already exceeding the word count where I want to be at this stage of the assignment. The VAT and equipment are the smallest two areas of my document so far.

MarGar

I think we need to remember it is 15% of the marks. Going into that depth might be woth 1% extra and take 5 hours extra.

In the case of Boyle Sauces acquiring companies (Gluten Mania) would it be better for them to set up a holding company and transfer the shares to the holding company under Sec 584/6?

crebel81

Atrema130 wrote: »

I am also wondering if the VAT part is more complicated than originally thought. I was told by someone that Boyle could set up a holding company and use the CIBO case to gain the VAT back on the professional fees of the acq of Gluten Mania. Just wondering if people are going into this depth?

I've read the same thing and I plan to write about the setting up of a holding company if I don't go over the word count. It's really just an alternative to the current structure as it is set out in the case study. Perhaps at the end of the file note and certainly within the letter

Atrema130

Stupid question. But what would be the benefit of that holding company? or are you just talking about it in terms of the VAT benefits (CIBO case)?

This case could go on and on. I am really going to try stick to the basics for the sake of a few percentage difference!!

Also just out of interest, did ye go into the whole detail about whether it was a finance lease or operating lease for the fridge etc and making an election to get capital allowances if it was finance lease? Or did ye just go with it being an operating lease and not being able to claim accelerated allowances if they didn't buy it?

crebel81

MarGar wrote: »

I think we need to remember it is 15% of the marks. Going into that depth might be woth 1% extra and take 5 hours extra.

In the case of Boyle Sauces acquiring companies (Gluten Mania) would it be better for them to set up a holding company and transfer the shares to the holding company under Sec 584/6?

Do you mean a share for share exchnage between the holding comoany and boyle sauces? Thats what I was planning on proposing as an alternative to the current structure.

How about gluten Mania? Would it not make sense to have the holding company purchase gluten mania?

MarGar

Yes a share for share exchange. So the holding company would have boyle sauces and gluten mania as subsidiaries. The holding company would then not be liable to CT on dividend received from their Irish tax resident subsidiaries. They can also avoid the surcharge under Sec 434.

crebel81

MarGar wrote: »

Yes a share for share exchange. So the holding company would have boyle sauces and gluten mania as subsidiaries. The holding company would then not be liable to CT on dividend received from their Irish tax resident subsidiaries. They can also avoid the surcharge under Sec 434.

Thanks Margar.

I think for section 434, Boyle and Gluten can avail of this anyway?

Atrema130

Yes wouldn't it be Franked II and also they could make the joint election to not have it surchargeable, whether there is holding company or whether Boyle just owns GM. So I don't think there is any benefit from that perspective? Or is my mind just gone blurry ha.

So maybe the holdco only has the benefit of the VAT under CIBo case?

crebel81

Atrema130 wrote: »

Yes wouldn't it be Franked II and also they could make the joint election to not have it surchargeable, whether there is holding company or whether Boyle just owns GM. So I don't think there is any benefit from that perspective? Or is my mind just gone blurry ha.

So maybe the holdco only has the benefit of the VAT under CIBo case?

Yeah I agree with you on the FII. No benefits I believe.

I think one of the biggest benefits is from an administration point of view. If it was decided to sell boyle and keep Gluten, this may cause issues under the current structure. However having a separate holding company which ultimately owns each sub would make it easier to sell off individual subs in the future.

Atrema130

Hi guys. Sorry one last question!! Just on the shares to the two employees. If they aren't able to pay for the shares now, would they get a notional loan under 122A?

I am just getting a bit confused about the wording in the section. It says the initial amount of the notional loan is the amount of the undervalue which is not chargeable to tax as an emolument.

Are the restricted shares chargeable to tax as an emolument or how much is the loan for?

Thank you in advance?

taxstudent101

Agreed, I found this section worded terribly and very confusing.

What are you assuming the subscription price to be - are the shares awarded at zero cost OR are employees paying full cost?

Atrema130

Yes very confusing. So lets say the shares are worth 2.5% of 20million, so 500k each (not looking at minority etc). And they are getting the reduction to the amount chargeable to income tax under Sch E of 50% because they are restricted. So they are liable to income tax on €250k.

is this not an emolument??

I am assuming the employees are not paying anything, so the shares are awarded at zero cost to the employees for the moment. So the notional loan would technically be for 500k, and will be reduced accordingly as the employees pay back the company.

However that is the problem, S122A says that the initial amount of the notional loan is the amount of the undervalue which is not chargeable to tax as an emolument. They aren't paying anything for the shares so the undervalue would be 500k. However, 250k is being charged as an emolument is it not??

crebel81

Atrema130 wrote: »

Stupid question. But what would be the benefit of that holding company? or are you just talking about it in terms of the VAT benefits (CIBO case)?

This case could go on and on. I am really going to try stick to the basics for the sake of a few percentage difference!!

Also just out of interest, did ye go into the whole detail about whether it was a finance lease or operating lease for the fridge etc and making an election to get capital allowances if it was finance lease? Or did ye just go with it being an operating lease and not being able to claim accelerated allowances if they didn't buy it?

Out of interest, what source did you use to discuss the tax treatment of a finance lease and an operating lease?

Atrema130

There is a booklet thing on tax find called Taxing Financial Transactions. To be honest, I stuck with it being an operating lease. I got a bit confused about whether they could claim accelerated allowances if it was they made the election to claim allowances under a finance lease?

crebel81

Atrema130 wrote: »

There is a booklet thing on tax find called Taxing Financial Transactions. To be honest, I stuck with it being an operating lease. I got a bit confused about whether they could claim accelerated allowances if it was they made the election to claim allowances under a finance lease?

Do you mind me asking why you think it's an operating lease? I don't think there is enough detail to state whether it's a finance lease or operating lease. What I have done is set out the tax treatment of each for Boyle.

In relation to the election, they won't qualify for accelerated capital allowances due to section 285A (5)