Simplified perspective of structural strategy for achieving shareholder value.

1. 1
Introduction
Companies in the UK have an obligation
to pay taxes on their profits. However,
the government does provide incentives
for investments made, in several areas
including R&D, Enhanced Capital
Allowances, and more recently SME’s
receive payroll relief of £2000, and
reliefs on account of loss outcomes.
Companies registered1 in the UK are and
will always be deemed to be resident in
the UK, whereas foreign incorporated
companies, with UK trading
establishments, must register with
Companies House, and notify HMRC
when they commence chargeable
activities, and pay CT for any profits
arising in the UK.
This article, seeks to demonstrate some
mechanisms available through reliefs,
which companies could claim in
reducing their taxes and fit specific
circumstances. It should not be
construed as general tax advice.
Liability to
UK Corporation Tax
As stated above, liability to corporation
tax is on profits from domestic and
foreign trading activities. UK companies
must still pay taxes even if trading
through a foreign-resident entity.
Since companies have several income
yielding activities such as capital gains
1
The term “registered” and “Incorporated” are
used interchangeably here, implying the
jurisdiction of formation and any arising liability to
Corporation Tax, under UK Companies Act 2006
and subsequent Finance Acts as put forward in
budgets by the Chancellor Exchequer.
from asset disposals, or Property
income, Bank or Loan Interests and
mainstream commercial activities, then
any profits from these are also subject to
corporation tax.
Note that UK registered companies do
not pay taxes on Dividends received,
rather these Augmented profits (as it is
called) are used to determine thresholds
depending on overall profits.
Tax Rates
As with most countries around the
world, tax rates are based on thresholds.
In the UK, in particular these thresholds
are much more simplified, with different
tax rates at each end of the spectrum,
and a marginal rate for profits falling in
between these.
The Upper limits for this is (£1’500’000)
and Lower limits is (£300,000) for
which companies pay 221%, 20%
respectively and 21.25% for profits
falling within these margins.
The government of the day is moving
along the spectrum of lower tax rates for
UK companies, seeking to make the UK,
2
This applies to the 2014/15 tax year.
CORPORATE TAX PLANNING AND STRATEGY
Company Typology, Groups and Tax Reliefs
Fig 1
Taxable Profits
Non-Trading Profits
Trading Profits
Capital Gains
Bank Interests
Loan int (Non-trade)
Property Profits
Dividends (Augmented)

2. 2
more business friendly and attractive
for investors.
Group Companies
Group companies arise when a parent
company owns and controls other(s), as
subsidiaries through a 75% entitlement
to voting shares, profits or winding up
proceeds. This gives rise to a special
relationship such as loss relief between
parent and subsidiary, called 3Group
Relief groups (GRG) and when further
conditions are met, these can transfer
assets, to each other at, No gain, No loss,
named Capital Gains/Loss groups, (CGG)
One significant impact from group
relationships is the effect on the Upper
and Lower limits which are then divided
by the number of companies within the
group, including the parent company,
such that the upper and lower limits
may become smaller (in proportion to
(sub)subsidiaries, except dormant
companies) these are further time-
apportioned for shorter accounting
periods. A group company could have a
subsidiary that is not trading, i.e.
dormant.
Companies under Common Control
These are companies which are directly
owned and controlled by a singular
individual. Companies under common
control may also take the form of
4Closed companies, with control of at
least >50% holding of voting shares.
As regards strategic impact, Companies
under Common Control (CuCc) have one
3
Worldwide group formation where control meets
75% threshold of companies.
4
A company where 5 or less shareholders control
the company, in any proportion (HMRC, 1999)
similarity and difference in treatment
with GRG’s companies, being that:
a) Both groups and Companies
under common control must
share their Annual Investment
Allowances.
b) However, CuCc cannot divide
Upper and Lower Limits of tax
but Group companies are eligible
based on number of 5Associated
companies, plus itself.
However, companies under Common
control cannot surrender profits to relief
losses of other commonly controlled
companies, the basis being that they do
not have direct interests at group
formation in each other, but are rather
controlled directly by an individual, with
any arising associated holdings.
For planning purposes therefore, an
individual could own a company, which
owns several other companies in
proportions such that both the former
and the latter have controlling and
minority interests, forming groups, yet
maintaining control.
Corporation Tax Reliefs
CT reliefs arise on specific aspects of the
entity’s activities, whether or not these
are chargeable to CT.
A company could obtain relief from
gains on disposal and acquisition of
capital assets, provided certain time-
frame conditions are met and it reinvest
5
In UK tax parlance, an associated company is one
were an entity is under the control of another
through a > 50% ownership of voting shares, with
entitlement to proportion of profits, or where two
entities are under the control of one
parent/person.

3. 3
the proceeds, whether or not gains are
realised from such disposal.
In obtaining trading loss relief, specific
rules apply, such that a company can
only exhaust its ability to 6offset those
trading losses in the current year using
other profits, before taking other
alternatives, as carry back, or group
relief, with the last option being carrying
forward for potential future profits.
The timing of the loss claim must be
such that the group parent/subsidiary
company could exhaust its profits
surrendered or parent/subsidiary
carries the losses forward to a future
period, thus resulting to no profits and
no tax liability.
However, several tax planning
opportunities do exist for operational
companies taking into consideration
their operating outlook, historical
trading performance and spectrum of
legislation direction. The perspective
and treatment of Group 7Investment
Company is different as these operate in
regulated sectors.
Furthermore, the complexity of groups
such as a UK entity owning in
conjunction a part of a controlling stake
in an entity registered outside the UK
makes the later a 8CFC, thus the UK
6
Ibid (1999)
7
In the UK, Investment companies are those
trading in financial securities and instruments and
land, paying CT at the main rate, in addition to
stamp duties.
8
A Controlled Foreign Company is one where a UK
resident or entity in itself or with others hold at
least 40% of shares, but where non-UK interest
does not exceed 55%, in a non-UK registered
entity.
resident company may be subject to a
share of profits attributable from the
CFC, or maybe eligible for exemption
from CT on the specific foreign profits.
Consortium Companies
Business interests may often cross
functional and operational boundaries,
such that a company’s strategy may not
be to own the entirety of another entity,
but a proportion of it, e.g. Oil
prospecting, Logistics and Supply Chain,
Hotel Chains, often are ones where their
owners could be companies.
Appendix Fig 2 shows the potential
complexities that may arise in
determining corporate relationships and
thus, any related parties, in
transactions. A description of the
scenario is set out below:
1. Anderson UK Plc is a parent
company, holding > 75%
controlling stake in a European
(EU) resident entity, Bonn GmBH,
this forms a group for trading
and capital loss relief purposes.
2. BONN GmBH is a parent of Dansk
B.V Ltd. owning 53% controlling
stake, but not forming a group.
<75% ownership.
3. There is no effective interest
held by Anderson UK Plc, in
Dansk B.V Ltd. as the effective
interest is <75% i.e. (0.90 x 0.53)
0.47 # 47%.
4. Info Pvt Ltd is resident in India,
and controlled by UK resident
companies, with Anderson UK
Plc, having at least 40%
significant influence.
This makes Info Pvt Ltd a CFC, as
non-UK resident <55% holding.

4. 4
5. Info Pvt Ltd holds a 5% stake in
Dansk B.V Ltd. This is regarded
as an Investment.
6. New Ghana Ltd holds a 30%
stake in Dansk B.V Ltd.
representing an investment with
significant influence.
7. The Indigo Brothers, holders of
Dansk B.V Ltd., 12% stake in the
latter. A timely planning of
disposal could avoid tax on gains
under the 9SSE.
8. It follows therefore that, Dansk
B.V Ltd. is a Consortium-owned
coy, in that its owners have at
least >75% with none holding
<5% equity interest.
Accounting Period/Report Filing and
Penalty Regimes
The sphere of corporation tax is very
complex. Company operatives and
specifically the responsible officer(s),
usually the CFO, need to be mindful of
the accounting period, filing deadlines
straddling tax years, changing tax rules,
and the resultant opportunities
embedded in these.
An accounting period is 12 months in
length, for which the entity must make
submissions. If the 10period of account is
longer than 12 months, e.g. 18 months, it
must be divide these into 12 months and
6 months, consecutively.
9
The Substantial Shareholder Exemption applies to
corporate disposal of shares, where an entity
disposes off at least 10% shares of another entity,
and had held such shares for at least 2 years prior
to disposal.
10
A period of account is that duration of time
which the company prepares its operating
statements. An accounting period differs from the
former in that it must be 12 months long.
As regards tax planning, senior officers
should be matching these elements with
the strategic direction of the company or
group, determined by its trading and/or
investment activities in view of future
regulatory tax outlook for the
environment of operations.
This would enable the entity formulate
economically-beneficial policies, which
in turn should increase shareholders’
wealth, seteris par ibus.
Research suggests that several UK
operating companies are caught in the
penalty trap in one form or the other,
owing primarily to untimely CT filing
defaults or errors and poor or non-
disclosures of critical information. These
usually results to fines, or sessions at
either the First tier, or Lower tier
tribunals. Fines which are not allowable
expense in determining CT liability.
Small and Medium sized companies
usually have 9 months and a day from
the end of accounting period to submit
their returns. Alternatively, 3 months on
receiving a self assessment return from
HMRC. Large companies on the other
hand, are eligible to making instalment
payments, on account, based on
estimated CT liabilities.
Summary and Conclusion
Taxation, as we know it today has
become akin to a 11whirlwind romance
between governments and corporate
entities. On one hand, governments are
attracting private sector investments
through lower tax rates and industry
favourable policies, whilst corporate
entities by rigorously applying the
11
See (Frank, 2009), (Bauer, 2015).

5. 5
different caveats within the law in
various jurisdictions, attempt to reduce
their CT liability exposure.
A white paper document addressing the
impact of aggressive tax planning
(European Commission , 2012)
and the recommended action to stem
such corporate behaviour has
highlighted the erosion of the tax base of
an economy as a loss in tax revenues.
The above has resulted to multilateral
tax treaties (double-tax reliefs) between
countries, and the emanation of the
General Anti-Abuse Rules (GAAR) by the
European Commission.
A moral perspective does come into
play, when 12multinational corporations
are seen to have reduced their exposure
to the barest minimum in several
countries of their operations.
Overall, the key to delivering returns for
shareholders is what elements of the
entity’s internal and external
environment can be combined in timely
doses of operational strategy, resource
utilisation, witty decision-making
abilities and consistent monitoring for
results.
For tax policy developers, it is worthy to
note that, when they play a song,
corporate entities are bound to dance,
they will however choose to do so, in
a manner that best suits their
understanding of the song’s rhythms’.
12
Google, StarBucks, Apple, Vodafone and Amazon
have been tabled in the courts of public opinion
and in several parliamentary committee sessions,
in the UK, over their tax activities (Her Majesty's
Revenue and Customs (HMRC), 2014).
DEFINITION OF KEYWORDS:
Augmented profits – profits after
recognition of dividend receipts.
Chargeability: The implementation of
trading or other corporate activities that
are subject to taxation.
Consortium – an entity owned by other
entities under the proportional
ownership and residency rules.
Control – The power to determine and
direct resources and decision making,
represented by ownership of >50%.
Does not in itself determine groups.
Effective Interests- The ultimate
interests held by a parent company,
through a subsidiary in a sub-subsidiary.
Groups: Parent company >75%
ownership of voting shares in another
company, qualifying for profit surrender
and loss offset. An effective interests of
>75% must be held in sub-subsidiary for
group relationship to exists for trading
losses, and at least 50% for capital
losses. Groups must produce
consolidated accounts.
Penalty Regime - The applicable
penalty for default either for late tax
report filing or late liability payment.
Related Parties - entities within a
group and/or individuals (or their direct
relatives) of substantial authority within
such entity (ies), that transact with one
another, either at arms’ length or non-
commercial terms, and for which
disclosures maybe required.

6. 6
Who Really Owns Who?
45% 54%
90%
5% 1%
53%
30%
12%
Fig 2
About the Author:
Joseph Ndedde is a professional accountant and tax practitioner, with several years experience, and an avid academic.
He holds degrees in Accounting, Finance, and Business Management, and currently the Technical/Operations Director at
FR7 Professionals (UK) Limited, a London-based tax consultancy outfit. Email: FR7Professionals@outlook.com
Disclaimer: All contents are that of the author and do not imply general tax advice. October 2015.
Dansk B.V.
Ltd.
Anderson
UK Plc.
BONN
GmBH
Info
PvT. Ltd.
New
Ghana Ltd.
Indigo
Brothers
Minority
Owners
2 non-UK
resident
owners
References
Bauer, A. S. (2015, April 2). The Importance of Aggressive
Tax Planning to the Diversion of Corporate Resources:
Evidence from Chinese Public Firms. Retrieved September
12 , 2015 , from Social Sciences Research Network (SSRN):
http://ssrn.com/abstract=2586818
European Commission . (2012). Commission
Recommendation for Aggressive Tax Planning . Brussels:
European Commission.
Frank, M. e. (2009). Tax Aggressiveness and Relation to
Aggressive Financial Reporting. The Accounting Review ,
467 - 496.
Her Majesty's Revenue and Customs (HMRC). (2014).
Taxing Multinationals: Tackling Aggressive Tax Planning .
London.: HMRC.