Professional Skills Assignment Part 3

Professional Skills Assignment
Part 3
Release date:
Submission date:
12 May 2014
9 June 2014
You must use your continuous assessment examination number as your assignment title and
include this number on your original work declaration.
You must not identify yourself on your assignment by using your name or student number.
When submitting your professional skills assignment ensure that, in accordance with Student
Regulation 10, you:
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•
•
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Have attached a completed original work declaration as the first page of your
submission;
Have adhered to the citation guidelines;
Have followed the writing guidelines; and
Adhere to the submission instructions.
Please note that if plagiarism and/or personation is identified or suspected in the course of
correcting the professional skills assignment it will be dealt with in accordance with
Regulation 13.5.
Professional skills assignments must be received by the Irish Tax Institute before midnight
(23:59:59) on 9 June 2014.
Noting that each question contains different issues, which require different amounts of
research and explanations, students should be guided by the model solutions to previous past
papers in terms of the depth and breadth required in their answers. Students should note that
marks are specifically awarded for being relevant, concise and to the point.
All names mentioned in this assignment are entirely fictitious.
The marks awarded for this assessment represent 15% of the total marks available for the
Advanced Business Taxes Module.
Clearly state any assumptions you are making in your answer.
© Irish Tax Institute 2014
You work in the tax department of a professional services firm.
The firm acts as auditors and tax advisers to MD Holdings Ltd (“MDH”) and its subsidiaries
(all 100% owned by MDH). The group is involved in the manufacture and sale of medical
devices. MDH is incorporated and tax resident in Ireland. It has subsidiaries in Ireland, the
UK and France. MDH’s only source of income consists of dividends received from its
subsidiaries. You work as part of the team that advises the MDH group on tax matters.
MDH was established by Catherine Kenny in 1998. Catherine worked with leading medical
devices companies in the US for many years before returning to Ireland to set up MDH. The
group’s business has grown steadily over the years. The group prepares its financial
statements to 30 September each year and the value of the group at 30 September 2013 was
€20million.
Catherine recently asked to meet with the tax partner to discuss the group’s plans for the
coming months. You also attended the meeting. The following is a summary of the
information Catherine provided at the meeting:
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The facility located in Galway operates from relatively old premises which require a
significant upgrade to bring them to the required standard to improve efficiencies. It is
proposed that the operation will be closed down and customer contracts transferred to
another group member. MD Cork Ltd (“MDC”), which has a production facility in Cork,
and MD Leeds Ltd (“MDL”), which has a production facility in the UK, were both
considered. MDL was chosen as it was established in 2011 and Catherine wishes to grow
its business. The Galway operation is currently carried on by MD Galway Ltd (“MDG”).
MDH acquired MDG for €1.2million in 2003.
MDG’s 40 employees will be made redundant at an estimated cost to MDG of €800,000.
MDG has obtained legal advice regarding the employees’ rights under TUPE legislation.
The goodwill of MDG’s business, which relates to the value of its customer contracts, is
valued at €2million. The goodwill will be transferred to MDL for consideration of
€2million. MDG has identified a buyer who is interested in acquiring the premises for
development purposes for €400,000. MDG purchased the premises in 2002 for €900,000.
MDG will use the proceeds from the sale of the goodwill and the premises to discharge its
creditors leaving a surplus cash balance in MDG of €300,000. The intention is that MDG
will then be placed in members’ voluntary liquidation on 30 June 2014.
It is anticipated that MDG will generate a trading loss of €1milllion in its final accounting
period. MDG has been generating a small trading loss from its trading activities in recent
years.
•
MDH recently signed Heads of Terms to acquire a company in France (that recently
developed a product that could be very successful with further development) at an agreed
purchase price of €4million. MDH will use surplus cash to fund the acquisition. MDH will
incur professional fees of approximately €300,000 plus VAT in relation to the transaction
and it wishes to claim a VAT input credit for the VAT element of the fees.
(Continued overleaf)
1 •
The group wishes to expand its operations into Germany. It has identified a target
company in Germany and recently made an offer of €5million for the shares. MDH will
set up a 100% subsidiary in Germany (“GRHoldCo”) to acquire the target company
(“GRCo”). MDH will borrow €5million from an Irish bank to fund the acquisition. A rate
of interest of 5% has been agreed in relation to the bank loan. It is proposed that MDH
will lend the €5million to GRHoldCo on an interest free basis. The board of directors of
GRHoldCo and GRCo, post acquisition, will comprise members of the current
management team of GRCo.
•
One of MDH’s subsidiaries is a company that was incorporated in Northern Ireland in
1995 (“MDNI”). Initially, all of its operations were in Northern Ireland, but in more
recent years, it established operations in Co Louth and wound down its operations in
Northern Ireland. MDNI’s tax residence was migrated from the UK to the Republic of
Ireland on 30 September 2012. MDNI currently has surplus cash of approximately
€2million. It is proposed that MDNI will pay a dividend of €500,000 to MDH during the
coming months. MDNI generated profits of €700,000 from its trading activities during the
year ended 30 September 2013.
It was agreed at the meeting that the firm would consider the tax implications for the group
associated with the group’s plans as outlined by Catherine. A follow up meeting with
Catherine has been scheduled to discuss the firm’s findings.
REQUIREMENTS
1.
Using relevant tax legislation and supporting research sources, prepare a file note which
considers the information provided by Catherine and identifies the potential Irish tax
implications for the group. Where possible, suggest how the group’s plans may be
altered to improve the tax implications for the group.
(80 marks)
2.
Based on your analysis, prepare a summary of your conclusions for the tax partner and
prepare an agenda for the forthcoming meeting with Catherine.
(20 marks)
Total 100 Marks
2

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