Assignment: ASHE HOLDINGS LIMITED (AHL)
You are a tax adviser working for Arthurs Tax Partners. You have just had a meeting with Michael Ashe the CEO of one of the firm's largest clients, the ASHE HOLDING Group and he is looking for taxation advice on a number of issues. Michael began the meeting by summarising the background of the group as follows:
Michael and his wife Rosemary own equal shares in ASHE HOLDINGS LIMITED ("AHL"). They acquired 100 €1 shares each in 2004. ASHE HOLDINGS LIMITED in turn owns the following companies:
• 100% of OAK Limited, a company in the manufacturing sector;
• 85% of BEECH Limited, a logistics and distribution company;
• 75% of PALM Limited, a company in the retail sector.
Michael is considering some restructuring and would like your advice in this regard. It should be noted all companies have a 31 May year end.
A French investment company has offered AHL €1,200,000 to acquire its shares in BEECH.
€1,200,000 equates to the value of the company's net assets. Michael has provided you with BEECH's draft summarised statement of Financial Position (see Appendix One). AHL acquired its shareholding in BEECH in 2006 for €534,000. In 2011 OAK transferred a storage warehouse to BEECH. The warehouse was worth €320,000 at the time of the transfer and is currently worth €400,000. Michael would like to know the taxation implications of the sale of BEECH to the French investment company should it take place on 31 May 2017.
OAK is undergoing an expansion and requires an additional storage unit for its raw materials. PALM currently has some spare capacity in one of its units. Michael is interested in the VAT implications of transferring this unit from PALM to OAK. PALM acquired this unit directly from a property developer in October 2010 for € 1,589,000 (inclusive of VAT) and has occupied the property up until 30 April 2017. PALM recovered 100% of the VAT on acquisition. Alternatively he would like to know the taxation implications if PALM were to lease the unit to OAK. You can assume that both transactions would take place on 31 May 2017.
OAK has just been selected for Revenue Audit for all tax heads for 2016. Michael is concerned that the financial accountant for OAK is drinking on the job. He has identified some issues which he would like you to address:
(i) The financial accountant paid the three senior managers in OAK their annual bonus of €40,000 each on 15 November 2016. The accountant did not deduct any payroll taxes from these payments. The senior managers are top rate tax payers.
(ii) OAK supplies and installs storage units for its clients. Regardless of the cost of the materials and the cost of the labour, VAT at 13.5% is charged on all invoices.
(iii) An employee of OAK was seconded to work in Germany for 4 months in 2016 and the foreign earnings deduction (FED) was applied to her salary as a result.
(iv) OAK purchased a software package from a Spanish company. The Spanish company did not charge VAT on the invoice and as a result the financial accountant in OAK ignored the invoice.
APPENDIX ONE
DRAFT Summarised Statement of Financial Position for BEECH for 31 May 2017
Non-Current Assets
|
Land
|
620,000
|
|
Buildings
|
400,000
|
|
Other Non-Current Assets
|
160,000
|
|
Current Assets
|
860,000
|
|
TOTAL ASSETS
|
2,040,000
|
|
Long Term Loan
|
(500,000)
|
|
Current Liabilities
|
(340,000)
|
|
NET ASSETS
|
1,200,000
|
REQUIREMENT:
(i) Discuss the all the taxation implications of AHL selling its shares in BEECH.
(ii) Identify and discuss the VAT implications of transferring the unit free of charge from PALM to OAK or alternatively leasing the unit from PALM to OAK.
(iii) State your strategy for minimising penalties in a Revenue audit and explain in general terms the requirements that must be met and the benefits of this strategy.
(iv) Explain the tax underpayments (if any) and penalties which you would expect to arise in respect of issues (i) to (iv) above.
Professional presentation of assignment referenced in accordance with the Harvard Referencing System.