Monday 17 December 2018

Management buy-outs in danger, warns Department

Management buy-outs (MBOs) are a common form of corporate transaction where a company’s management buys out the company’s owners. (stock image)
Management buy-outs (MBOs) are a common form of corporate transaction where a company’s management buys out the company’s owners. (stock image)
Gavin McLoughlin

Gavin McLoughlin

Tax changes made in 2017 to tackle avoidance are stopping management buy-outs from going ahead, the Department of Business, Enterprise and Innovation (DBEI) has warned.

The department asked for a change to tax legislation to circumvent the problem in its pre-Budget submission, but the change was not made by Finance Minister Paschal Donohoe in Budget 2019.

"This provision was introduced to deal with a Revenue-identified avoidance opportunity. There are concerns that this is impacting on genuine and legitimate commercial transactions," DBEI said in its submission, released to the Irish Independent under a Freedom of Information request.

"The provision introduces uncertainty around the tax treatment of transactions to such a degree that these transactions (typically management buy-outs and other succession arrangements) may not now proceed".

Management buy-outs (MBOs) are a common form of corporate transaction where a company's management buys out the company's owners. They are often used by small businesses where owners want to retire and pass the business on.

DBEI suggested an amendment could be made to the Taxes Consolidation Act, whereby a test could be introduced to see if the transaction was bona fide.

"This would have the effect of targeting the avoidance whilst still allowing genuine transactions to have the certainty that enterprises require.

"This is especially crucial in these instances as the transactions typically involve securing outside financing, which may not be forthcoming in the absence of certainty," the department said.

It also called for extending film relief beyond film and television projects into the "wider digital media space".

The department said that although the digital entertainment industry had established an "important foothold" here, this was "under threat as our international competitors offer an attractive range of incentives designed to encourage new projects and ventures to locate in their jurisdiction".

DBEI also asked for an overhaul of some technical requirements of the film scheme, which it said were too complex for potential investors.

Mr Donohoe did not make the changes to the film relief scheme that were sought, though he did extend its lifetime to 2024 and introduced a boost for projects carried out in certain regional areas of the country.

Irish Independent

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