On a 1970s TV series episode one of two companies entering merger talks has had some of its revenues skimmed off by its MD and majority shareholder and over a few years he uses the cash to build a factory that lies under his own name.
With his business expanding, he wants to integrate the factory building worth £1.5 million (~£9 million today) within the company but if he sells it he'll be done for CGT. Presumably other taxes would apply to income he would gain by leasing the building to the company. He is up front about the situation to the chairman of the other company, who is also an employee of that company's merchant bank. Both merging companies are in haulage, the MD's is Dutch, the chairman's British. The MD of the Dutch company mentions certain tax incentives available to overseas investors in Holland that are of course not available to him as a Dutch national.
To reduce the MD's tax liability, the chairman proposes that his counterpart sell all his old trucks to the chairman's company at a low markdown and then buy new trucks from the chairman's company.
At a subsequently board meeting the finance director of the British company objects to this asset swapping as Inland Revenue would sanction it if it became known to them.
I can't find much on asset swapping so far on the web. Apparently in accounting the assets need not physically move in order to achieve ownership swap.
Can anyone enlighten me on this manoeuvre?
Firstly, an asset that the MD has in his own name can never be "smuggled" back into the company. Neither do I see how a privately-owned asset may be sold (necessarily at close to its market value) to a company without an automatic demand from the local tax authorities for both stamp duty and capital gains tax. The fact that the MD's company may be able to swop asset ownership with a merger-partner cannot relieve the MD's personal tax liabilities incurred after a sale of a major property asset.
Yet clearly there is some benefit to this asset swap that I am missing - otherwise it wouldn't be done.
My curiosity is naturally completely academic. I think that most of the M&A tax loopholes of the 1970s have been sealed up by tax authorities in US and European countries - and in any event I am most unlikely to ever be in such a position to need them
With his business expanding, he wants to integrate the factory building worth £1.5 million (~£9 million today) within the company but if he sells it he'll be done for CGT. Presumably other taxes would apply to income he would gain by leasing the building to the company. He is up front about the situation to the chairman of the other company, who is also an employee of that company's merchant bank. Both merging companies are in haulage, the MD's is Dutch, the chairman's British. The MD of the Dutch company mentions certain tax incentives available to overseas investors in Holland that are of course not available to him as a Dutch national.
To reduce the MD's tax liability, the chairman proposes that his counterpart sell all his old trucks to the chairman's company at a low markdown and then buy new trucks from the chairman's company.
At a subsequently board meeting the finance director of the British company objects to this asset swapping as Inland Revenue would sanction it if it became known to them.
I can't find much on asset swapping so far on the web. Apparently in accounting the assets need not physically move in order to achieve ownership swap.
Can anyone enlighten me on this manoeuvre?
Firstly, an asset that the MD has in his own name can never be "smuggled" back into the company. Neither do I see how a privately-owned asset may be sold (necessarily at close to its market value) to a company without an automatic demand from the local tax authorities for both stamp duty and capital gains tax. The fact that the MD's company may be able to swop asset ownership with a merger-partner cannot relieve the MD's personal tax liabilities incurred after a sale of a major property asset.
Yet clearly there is some benefit to this asset swap that I am missing - otherwise it wouldn't be done.
My curiosity is naturally completely academic. I think that most of the M&A tax loopholes of the 1970s have been sealed up by tax authorities in US and European countries - and in any event I am most unlikely to ever be in such a position to need them
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