Last week’s post considered some key aspects impact of the introduction of the 50% general discount on business succession.
A further significant related transaction cost issue that has also changed over the last few years to further encourage purchasers to consider a share acquisition relates to the tax consolidation rules.
In particular, it was historically the case that in order for a purchaser to be able to claim depreciation in relation to the market value of the assets they had acquired, they needed to physically acquire those assets.
In contrast, if the shares in the relevant company were acquired, then there was no adjustment to the tax carrying costs of its assets.
In very broad terms, if a purchaser acquires shares in another company and that company becomes a member of the purchaser’s tax consolidated corporate group, then it is permitted to 'reset' the tax carrying costs of all assets of the company.
Although there can be a number of problems that arise with this resetting, in very general terms, the intention of ensuring that the tax outcome for a purchaser on a share sale as compared to an asset sale in what is otherwise an identical transaction are normally broadly achieved.
One last permutation worth remembering relates to where a purchaser is open to consider a share sale arrangement but wants to ensure that any historical difficulties with the company currently operating the business are quarantined to the maximum extent possible.
In these circumstances, it is often sensible for the vendor to suggest that a restructure be done before completion (often the finalisation of the restructure will be a settlement day condition precedent) whereby the assets of the existing company are 'rolled over' into a cleanskin company.
Obviously, there are a number of commercial, tax and stamp duty issues that need to be considered with this approach, however in many instances, it can deliver the precise outcome that each of the parties are aiming for.
** for the trainspotters, the title here is riffed from the U2 song ‘New Year’s Day’.