A question that business owners regularly ask is whether they should insert a holding company over their existing trading company. The answer to this is not a simple yes or no and will depend on the circumstances of each case and the extent and types of business activity(s) expected to be carried on. We have provided some key considerations for both you and your clients to bear in mind when they are weighing up the decision to create a group holding company structure.

Potential benefits from implementing a group structure

• A group structure can segregate risk between companies and particular activities or assets, so it is ideal for asset protection purposes. It allows for dividends to be made to the holding company without any adverse tax implications once various elections are made and steps followed.
• A holding company structure can facilitate further investment through separate subsidiary companies within a group structure and can facilitate lending between companies within the group without adverse company law implications.
  
  
• A group structure can provide the ability to offset trading losses from one company to another assuming the required percentage is held by the holding company.
• A group structure can facilitate efficient management of various companies whereby recharges or costs can be allocated by one company to another within the protection of the group structure.
• A group structure can facilitate the transfer of assets between companies without incurring a CGT liability assuming the required percentage is held by the holding company.
• Any gain arising on the disposal of a subsidiary by a holding company can, assuming all other conditions of the Participation Exemption in Section 626B TCA 1997 are met, be fully relieved from CGT, resulting in the full proceeds being available for further investment at the holding company level.

It is important, however, to weigh up the benefits of the above with some of the following items.

Potential disadvantages/items to consider before creating a group structure

• There are increased accounting requirements and increased tax compliance requirements as a result of having further corporate entities to manage on a yearly basis.
• It is always important to consider the future plans for shareholders as implementing a group structure could impact the availability of future CGT reliefs on an exit from the group, such as Retirement Relief and Revised Entrepreneur Relief. The rules for these reliefs are more complicated in a group situation, particularly where a liquidation is the ultimate goal for the shareholders.
• Where a subsidiary of a holding company is sold and participation relief in Section 626B TCA is claimed as discussed above, the proceeds are received by the holding company and not directly in the hands of the shareholders. Therefore, in circumstances where there are no further investment intentions in the holding company, these funds then have to be subsequently extracted by the shareholders from HoldCo (with it being harder to claim the reliefs in a liquidation scenario). If there are other subsidiaries/entities in the group, it will not be possible to liquidate the holding company without liquidating the full structure. As such, often a further pre-sale or pre-transaction restructure is needed when an existing group structure is in place and certain exit events or disposals are desired down the line.

Once structured correctly, it is possible to avail of CGT reliefs and stamp duty reliefs to prevent any tax leakage on the creation of a holding company where the consideration for the transfer is in return for shares and there is no value shifting among other conditions. Another relevant decision is what percentage of the existing company will be transferred by the existing shareholder(s) to the holding company. It may make sense to hold back a certain percentage to make the most of certain reliefs, where on a future sale, part of the proceeds can flow directly into the shareholder’s hands and part to the holding company. However, this would need to be structured and implemented correctly.

The above is only a summary of some of the key items to flag that should be considered by business owners before implementing a group structure. It is important to note that the circumstances of each business should be assessed on a case-by-case basis as depending on the size of operations, what level of assets are at risk (driving the asset protection reason), future trading plans, future investment plans, nature of the industry and ultimate goals of shareholders the decision and benefits from creating a group structure will vary.

At OmniPro Tax & Legal we not only assist you and your clients in selecting the most suitable corporate structure for a business, but we also assess whether that structure is appropriate for your client circumstances into the future. Our full suite of services includes examining the tax implications of creating a holding company, identifying available reliefs, drafting compliant documentation to implement the chosen structure so as to come within the remit of the tax reliefs, and providing guidance on how it should be accounted for. Contact us today for expert guidance on structuring options.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.