International Business Reorganisations
By Aleyna Şeyma Kaya, İrem Akpınar
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INTERNATIONAL STRUCTURING
A limited company is a company ‘limited by shares’ or ‘limited by guarantee’. Limited by shares companies are usually businesses that make a profit. This means the company is legally separate from the people who run it, has separate finances from your personal ones, has shares and shareholders, and the company can keep any profits it makes after paying tax. Limited by guarantee companies are usually ‘not for profit’. This means the company is legally separate from the people who run it, has separate finances from your personal ones, has guarantors and a ‘guaranteed amount’, and the company invests profits it makes back into the company. When we talk about setting up a limited company step by step, the first step is checking if setting up a limited company is right for you, second one is choosing a name and then choosing directors and company secretary and deciding who the shareholders or guarantors are by identify- ing people with significant control over your company. When you are getting closer, the next step is preparing documents agreeing how to run your company with check- ing what records you will need to keep and finally registering your company.
If we come to types of companies, in the UK, there are four ‘standard’ types of company: Public Limited Company, Private Company Limited By Guarantee, Private Company Limited By Shares, Private Unlimited Company. Private company limited by shares means the company has a share capital and the liability of each member is limited to the amount, if any, unpaid on their shares, and a private company cannot offer its shares for sale to the general public. Private company limited by guarantee, company does not have a share capital and its members are guarantors rather than shareholders. The members’ liability is limited to the amount they agree to contribute to the company’s assets if it is wound up; and the next one is a private unlimited company, an unlimited company may or may not have a share capital but there is no limit to the members’ liability. Last type is a public limited company, it has a share capital and limits the liability of each member to the amount unpaid on their shares. It may offer its shares for sale to the general public and may be quoted on the stock exchange. There is further information about public companies. Beside these standard types of companies there are also a handful of specific types of non-standard companies.
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WHAT IS SPV AND WHAT ARE THE SPVS USED FOR?
A special purpose vehicle (SPV) is simply a regular limited company which is used solely for a particular purpose. SPVs are often created to separate the liabilities of the parent or subsidiary company and protect the assets of the parent company. It is usually used by companies to isolate the parent companies from the financial risk. Its legal status as a separate company makes its obligations secure even if the parent company goes bankrupt. For this reason, a special purpose vehicle is sometimes called a bankruptcy-remote entity. SPVs are commonly utilized in certain structured finance applications, such as asset securitization, joint ventures, property deals, or to isolate parent company assets, operations, or risks.
Taxes collected directly or indirectly are cost elements for companies collected for the purpose of performing public services. Therefore, corporations have to implement various methods to reduce their tax costs. Tax planning is the strategic frame- work of these methods based on reducing the amount of cash outflow that will occur depending on the tax burden. Accordingly, it is the efforts of corporate taxpayers to minimize the tax burden by taking advantage of the rights granted to them by tax laws. Previously, companies used to pay taxes on profits made in the country in which they only operate. Followed by the digital insurance economy and increasing demand for transparency, the status quo is challenged. The acceleration of internationalization tendencies and the fields of activity of the companies in today’s global business world resulted in taxable profits not being tied to the geographical location in which the company operates. The new digital economy system also poses challenges to tax rules with changing tax policies and new compliance requirements which vary from country to country. Multinational companies have to carefully tread any tax planning and compliance tightrope. Failure of tax planning may result in the profits being subjected to taxes in two, or even more jurisdictions. The scope of international tax planning constitutes the commercial links of companies between countries. In this context, the advantages offered by bilateral tax agreements between countries are utilized based on legal entities formed in various types in the countries covered and subject to the laws of the relevant countries. Undoubtedly, the main purpose of multi-country structures is to reach tax rates lower than the tax rates to be incurred in traditional international trade.
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The possible tax repercussions of a merger or acquisition to a company organization and its owners, as well as the complexity of the tax concepts involved, make tax planning one of the most important components of structuring such a deal. The tax department performs strategic analysis that informs and drives M&A decision-making and structuring.
