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December 2008
Restructuring Restructuring –– Tax IssuesTax Issues
| Slide 2 | 11 June, 2009
Four main areas of restructuring
• Refinancing existing debt
• Debt re-structuring
• Buying distressed debt
• Buying distressed companies
Each gives rise to its own tax concerns.
| Slide 3 | 11 June, 2009
Get the tax right first….…because getting the tax wrong can cost you more than you bargained
for:
• 53.8% PAYE and NIC on management incentives
• 28% potential tax charge on a waiver (or deemed waiver) of debt
• 28% tax cost on non-deductible interest
• 20% withholding tax on interest
• 15% value added tax if restructuring causes a taxable supply
• Trapped losses
| Slide 4 | 11 June, 2009
Refinancing – The Borrower’s Perspective• Is the new debt limited recourse? What are the
implications for grouping and deductibility?
• Could transfer pricing rules restrict deductions on new debt?
• Will any accumulated interest paid on old debt be deductible?
• Does tax need to be withheld from interest payments?
| Slide 5 | 11 June, 2009
Refinancing – The Lender’s Perspective
• Are new treaty clearances required to avoid withholding tax?
• Are the gross-up clause protections adequate?
• Are there transfer pricing concerns?
| Slide 6 | 11 June, 2009
Debt Restructuring – The Borrower’s Viewpoint• Will a waiver of debt be taxable? Can it be structured to
escape the tax liability?
• Does a debt for equity swap avoid a tax charge?
• Is withholding tax due on accrued interest ?
• Are there alternatives such as re-structuring the group and leaving the debt behind?
| Slide 7 | 11 June, 2009
Debt Restructuring – The Lender’s Viewpoint• Will a waiver be tax deductible?
• Does a waiver increase the value of managers’ interests – if so is this taxable?
• If a debt for equity swap is pursued instead, ensure the lender’s tax deduction is preserved (only one of the two methods achieves this)
| Slide 8 | 11 June, 2009
Distressed Debt – The Buyer’s Concerns
• Will withholding tax be due on accumulated interest?
• When will the profit be taxed?
• Is there a risk of deemed profit in the borrower (the connected parties trap)?
• Is the transfer VATable?
• Should the buyer be offshore?
| Slide 9 | 11 June, 2009
Distressed Debt – The Seller’s Concerns
• Can it obtain/retain tax relief?
• Is a taxable income receipt triggered on sale?
• Is the transfer VATable?
| Slide 10 | 11 June, 2009
Distressed Company – The Buyer’s Issues
• Should it be a business or company purchase? (a company purchase may allow access to historic trading losses)
• Consider a hive-down as an alternative to company purchase
• Are you paying for trading losses and will they be restricted?
• Will non-trading and capital losses be available?
• How should consideration be allocated to maximise future benefits?
• Will further restructuring post-acquisition be required?
• If management are retained, how can they be incentivised tax efficiently?
| Slide 11 | 11 June, 2009
Distressed Company – The Seller’s Issues• Is there a deductible loss for shareholders?
• Are there valuable tax assets such as trading losses and how canyou get maximum value out of these?
• How should consideration be allocated to maximise the Seller’s position? Avoid debt repayment being part of the consideration?
• Any VAT concerns in pre-sale restructuring?
• Is a pre-sale hive down needed?
• De-grouping charges?
| Slide 12 | 11 June, 2009
For more information contact:
Eloise WalkerPartnerPinsent Masons LLP
DDI +44 (0) 20 7490 6169 [email protected]
Liz MorganPartnerDDI +44 (0) 20 7418 [email protected]
John Christian Partner DDI +44 (0) 113 294 5296 [email protected]
22276482
| Slide 13 | 11 June, 2009
Working hard to make it easier
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