More Facts Resolve Tax Risks –

Forgetting to Clean Up Afterward –

THE POSITIVE PREPLANNED result in the media business sale above, did not result in this case. A major consumer supplier decided to sell an unrelated group company for approximately $300m. The transaction was simple enough. When the business had been sold, all that had to happen was that the holding company had to be deregistered within a five-year period; and the deregistration dividend, in anticipation of the deregistration steps being taken, could be declared to the parent group, exempt of dividend tax. As simple as that!

The sale took place. The deregistration dividend was declared, exempt of dividends tax, but the company was not deregistered. Five years later, six years later, and in the seventh year as part of the TRM™ process, the mistake was uncovered in the main group of companies. How was this possible? Such a simple step!

Immediately a thorough investigation was conducted to establish from all the relevant facts how this could happen. The facts provided the answer and a way out of having to pay tens of millions of dollars dividend tax.

At the time the transaction was concluded, the responsibility of deregistering the company was left to a major international accounting firm, which ceased operating shortly after the transaction ended. All the functions they were performing were transferred to a new accounting firm. Somehow this deregistration transaction slipped through, and no one picked it up! The intention to deregister the company, however, had always been there. It was also found, through the appropriate research by the tax team, that the taxman also had a discretion to condone the late deregistration of companies on good cause shown. The good cause shown was the facts uncovered.

The discretion was exercised, and the taxpayer got away with paying no dividend tax. A simple oversight could have cost the groups as much as an extra 30% on their annual tax bill. How’s that for an exposure of a significant uncovered tax risk from just one simple transaction that had gone wrong! Had proper past transaction legal audit steps been implemented as part of a broader tax risk management Tax Risk Management strategy, the oversight would have been discovered well before the expiry of the five-year period.

In larger groups of companies the change of guard at management level often results in oversights that are this simple. Unless a documented tax risk management Tax Risk Management strategy is in place, with the guidance of an established tax team helping the new watch to pick up where the others left off, loose ends will result in unnecessary tax revised assessments.

In accordance with Circular 230 Disclosure