Case studies

Group reconstruction

One of our clients is a well established and successful international group.  The structure of the group that had been in place for many years was such that there were a number of tiered holding companies that over-complicated the underlying structure. 

Littlejohn worked with the client to design a new structure for the group to ensure that there would be a solid base and the appropriate structure with which to move forward.  The new structure created a new group holding company but focussed on the main trading company and brought all shareholders at the main trading company level up to the holding company level, thus bringing the shareholders of the main trading company alongside the founder shareholders of the group.  The shareholdings in the new group holding company were structured to reflect the former interests of those shareholders in the net assets of the main trading company but in a way that was more transparent for shareholders, customers and suppliers.  The process was also designed to enable the founder shareholders to withdraw some of their assets in the former holding companies achieving some financial independence whilst retaining a substantial financial commitment in the group going forward.

Capital expenditure tax review

Our client operates from a number of sites in central London.  In addition to our year end work, we meet with our client regularly to discuss business issues and their taxation implications.  During one such meeting, our client advised us that they were in the process of inviting tenders for the refurbishment of two sites, and were planning to open two new sites before the end of the year.  All four sites would involve significant levels of capital expenditure, and also repair costs in respect of the existing sites.

Prior to the year end, we reviewed in detail the works involved at each site, and clarified the likely tax treatment of the expenditure.    As the works were either still in progress, or recently completed subject to 'snagging'  we were able to contact the project managers and architects directly to ascertain what works had been carried out in order that the tax treatment could be confirmed. 

This allowed our client to more accurately forecast their tax liabilities for the current and future years. 

Group restructuring

Our client operates in a regulated industry and, due to the nature of their shareholders, regulations required them to have a form of 'control break' between two group companies.  This control break had the effect of separating voting rights in one group company to individuals outside the group, although 100% of the economic rights remained within the group.  From a corporation tax perspective, the company subject to the control break did not form part of the corporation tax group for loss relief purposes due to the absence of voting rights.

In 2008, the group was acquired by a third party.  Shortly before the acquisition, we met with our client and the purchasers to discuss the tax implications.  We established that the structure of the acquisition meant that share options held by employees would be immediately exercised upon the acquisition and this would crystallise significant corporation tax relief in a group company.  However, in the current year, taxable profits were forecast to be low in all companies forming part of the corporation tax group, whereas the company subject to the control break would be profitable.  Due to the control break, losses arising in the main group could not be surrendered to that company.

However, as the identity of the shareholders was to change due to the acquisition, we discussed with the client's lawyers as to whether the control break would be necessary in the future.  It was confirmed that the requirement would be removed as a result of the acquisition.  We took steps to immediately remove the control break, which meant that the group structure is now simpler, and losses in the wider group can now be surrendered against profits in the subsidiary previously subject to the control break, improving the overall tax efficiency of the group structure.