The following is an overview of some of the main tax issues that arise when a business is sold. We shall assume in this case that we have a corporate buyer and a corporate seller. We shall also assume both parties to the transaction are subject to UK corporation tax and that the business is a trading operation.
Tax avoidance and multinational corporations have featured prominently in the news in recent weeks.
We have seen the likes of Google and Starbucks being called to appear before the Public Accounts Committee to explain their tax practices, Prime Minister David Cameron talking about the need for global action against tax evasion and aggressive tax avoidance, and even Leader of the Opposition Ed Miliband, saying that he would rewrite the corporate tax rules (why? Doesn’t he think the new GARR will do the trick?).
Perhaps the phrase which best sums up the view of those who consider these companies to be engaging in suspect tax planning is that of Margaret Hodge, who chairs the Public Accounts Committee:
“We’re not accusing you of being illegal, we’re accusing you of being immoral”
Now it is all very well to have these debates about how and why these multinationals manage to minimise their tax bills. But what concerns me is that, reading the various press reports, it is never clear just what exactly the company involved has done that is so immoral. And if we don’t know what this is, how can we have a debate about it?
We have seen in previous articles how the degrouping rules operate to prevent the use of a corporate vehicle to shelter taxable gains. There are two sets of rules, one for capital assets and the other for intangibles (“IP”). In this article we shall look at how these rules differ, giving a specific example involving a business sale.
(This article can be downloaded in pdf format at Academia.edu.)