Expert Witness, Forensic Accounting
Gerald Edelman advises on the tax treatment of a business sale following a demand for additional tax payments eight years after the original sale
We are pleased to announce that Gerald Edelman has advised on the taxation treatment of a business sale. Prompted by allegations of wrong-doing, the buyer (a listed plc) amended the historical treatment of a number of business acquisitions to treat them as emoluments of employment, rather than capital acquisitions.
Following the change in historic treatment to one particular transaction, the buyer voluntarily paid the additional taxation due to HMRC caused by the change in treatment, before seeking to reclaim the equivalent amount from our client under a tax indemnity included in the SPA governing the original transaction.
Gerald Edelman was asked to advise on whether the business sold by our client should have been treated as a genuine capital transaction, or whether it was simply a method to pay additional remuneration. The outcome of our advice would assist our client in deciding to challenge the Buyer’s demand for additional payment from our client to compensate the Buyer for the additional tax paid to HMRC.
The matter was not clear cut and we identified 19 factors which could influence the treatment (either ‘capital’ or ‘income’). In addition to clearly explaining each factor, we prepared a matrix which set our opinion on the ‘persuasiveness’ of each factor, to provide our client with a clear and thorough understanding. Further, the Gerald Edelman team, led by Carl Lundberg (Partner) and Will Abell (Associate Director), advised on various other matters including the Buyer’s obligations to revisit the transaction, the taxation calculation prepared by the Buyer’s accountants and the Buyer’s communication with HMRC.