Almost every transaction will have tax implications. Tax lawyers may help to determine the way in which transactions should be structured (for instance whether clients should pursue share or asset sales) and the methods of financing that should be used for a transaction (cash reserves, debt or equity). Tax lawyers also liaise with HM Revenue & Customs and advise on tax disputes and investigations. This may involve consideration of whether tax schemes are illegal or abusive through analysing the many different statutes, rules and regulations that apply to tax, for instance the General Anti-Abuse Rule.
Examples of ways in which firms can minimise their tax bill include: borrowing money from subsidiaries in more tax efficient jurisdictions and paying high interest rates in return; paying large franchise fees to franchisors based in more tax efficient jurisdictions; or paying inflated prices when acquiring goods from subsidiaries along the supply chain in more tax efficient jurisdictions.
These strategies effectively enable companies to reallocate (or reroute) profits from subsidiaries (or other companies within the same group) in jurisdictions with high corporate tax rates to other subsidiaries (or companies within the same group) that exist (and thus pay tax) in jurisdictions offering more favourable tax rates. Consequently, there would be less profit available for taxation in jurisdictions with high tax rates.
Special Purpose Vehicle (SPV): a legal entity (shell company) created to serve a particular function. Firms may include special purpose vehicles within their corporate structures to absorb financial risk or reduce tax liabilities, for instance through registering and operating them in tax havens such as the Cayman Islands or Luxembourg.
. . .
By Jake Schogger - City Career Series