Dealing with the After-Effects of an EBT Arrangement

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The Problem

PD Tax were appointed to assist a group of shareholders in selling their business to a third party. It was important to them that they sold their shares in the company to optimise their tax positions.

However, after carrying out due diligence, the buyers decided that they did not want to buy the trading company from the sellers because they thought that the company had undertaken an aggressive employee benefit trust (EBT) tax arrangement in the recent past (PD Tax did not advise on the EBT arrangement).

The buyers suggested that they buy the trade and assets from the trading company, as they were still keen to make the acquisition. However, this was not in the interests of the sellers because this meant that they would suffer a much higher rate of tax than if they sold the shares.

Therefore the EBT became a sticking point in the deal.

The Solution

PD Tax worked with the sellers to develop a structure which meant that they could retain a low tax rate, whilst retaining the company which had carried out the planning, thus allowing the purchaser to acquire a new “clean” company.

We were able to develop a practical solution to the problem and the buyers were happy to utilise our proposal to overcome the EBT arrangement, as far as the sale was concerned.

The Result

With the support of PD Tax, the sellers were able to complete the sale without further discussion regarding the level of consideration for the business.