Valuation vs nominal value - tax outcome

[walako]

Hi all!
I am a young lawyer, and I am questioned how are business assets valued vs tax implications in the EU.

1/ For example there is a Trading Company which makes revenue 5m per year, although the share value is 5k euro at best.
I am trying to get an understanding on how these assets can be transferred, at what price (I suppose the SPA would have nominee value, but additional agreement may contain the real price as parties agreed).

2/ For example, aiming to create a holding structure the shareholders of the Trading Company make a contribution in kind of their shares to the newly created Holding Co. What tax implication that might have? Also, when the Holding Co owns 100% of the Trading Co, which has nominee value 5k euro, is real valuation reflects in the Balance Sheet, how that supposed to be valued?
And then in case of the exit or sale of shares - what would be the capital gain size. For example, 10% of shares are sold for 2m euro - would that mean that 10% of shares with nominee value 500 euro have grow in price *4000 times (sale price 2m / nominal 500 euro).

Any advice is useful, what should I google Although, I think it is more a question of real world that is why I am asking here. I am sorry if I am duplicating a thread, which already exists.

Best
v.

My concern is about the tax mainly and how the price of the shareholding reflects on Balance sheets (or whatever fin report). Because the difference nominal vs real share price is huge, would that mean that a shareholder might be liable to the capital gain profits?

 

[ElBotellon]

I believe this topic belongs to the area of tax neutral reorganizations and rules are defined by each jurisdiction.

If the reorganization is in EU then you can benefit from the implemented directives and tipically perform tax neutral reorganization.

In your case you should google "exchange of shares" in the specific jurisdictions where you are operating. The owner of the subsidiary exchange shares of the subsidiary for shares of the holding. The key point tipically to keep it tax neutral is to exchange them at nominal value and keep them (the participation) in balancesheet at nominal value.

 

[walako]

@ElBotellon
Thank you very much! <3
I am aware of shares exchange, easy doable in the UK, also seem to be ok in the EU countries. Portugues lawyers offered me EUR 5k service cost to make that transaction I am happy to pay them for other services, but in this case I do believe that is a simple swap (just internal transaction which does not involve investors and external third parties). Nevertheless, the transfer of other liabilities is important in such case as well.

My thread mainly concerned what digits should appear on the fin reports at the Holding Co layer in case of the shareholding of a subsidiary (as a result of shares exchange or contribution in kind).
Should the value of those shares be somehow assessed? Or are they still priced at 5k euro, resulting that Holding Co owns a subsidiary which cost 5k but makes millions of revenues and some profits?

I am aware of P-S Directive and participation exemptions.
Although, in the case individual shareholder who keeps shares of a Holding Co for a nominal value - then decides to exit. The difference between nominal vs real price is huge. That leads to high capital gain tax on the gains made. I do not know how to elaborate that it is enormous and illogical even from the tax officer perspective to pay CGT on profits increased *4000 times (as an example) comparing to nominal value of the statutory capital. And it is a super basic question, I just never faced that matter tho

 

[ElBotellon]

@ElBotellon
Thank you very much! <3
I am aware of shares exchange, easy doable in the UK, also seem to be ok in the EU countries. Portugues lawyers offered me EUR 5k service cost to make that transaction I am happy to pay them for other services, but in this case I do believe that is a simple swap (just internal transaction which does not involve investors and external third parties). Nevertheless, the transfer of other liabilities is important in such case as well.

My thread mainly concerned what digits should appear on the fin reports at the Holding Co layer in case of the shareholding of a subsidiary (as a result of shares exchange or contribution in kind).
Should the value of those shares be somehow assessed? Or are they still priced at 5k euro, resulting that Holding Co owns a subsidiary which cost 5k but makes millions of revenues and some profits?

I am aware of P-S Directive and participation exemptions.
Although, in the case individual shareholder who keeps shares of a Holding Co for a nominal value - then decides to exit. The difference between nominal vs real price is huge. That leads to high capital gain tax on the gains made. I do not know how to elaborate that it is enormous and illogical even from the tax officer perspective to pay CGT on profits increased *4000 times (as an example) comparing to nominal value of the statutory capital. And it is a super basic question, I just never faced that matter tho

this is not legal advice but as far as i remember for tax neutral result of reorganization you are obliged to keep nominal value also in the balancesheet of the holding, indeed if you revaluate the value this one is usually a taxable event. in practice the tax neutral reorganization is offering you possibility to reorganize without anticipating the tax event due to the reorganization.

regarding exit taxation for individuals that one is really country specific and depends on personal circumstances. any comment would be not serious without more details and specific knowledge.

your amounts seem anyway not small so i would not save on written qualified legal opinion (from qualified lawyers) which may provide also support for eventual disputes. i am not a lawyer so you should take "cum granu salis" any comment on my side.

 

[walako]

Dear @ElBotellon
Ty! Very helpful anyways! Also, me knowing that person, family circumstances, business can't calculate even assumable digits. Too complex matters: double residency (UA and PT in fact) + personal taxation, multiple CFC, reorganisation, possible exits, ATAD GAAR, place of effective management, dividends, payroll contributions. Having all that stuff corporate taxation is very simple concept then and not a priority in the reorganization process.
I was just trying to get a sense - so I find a proper service and will be more critical to filter information