Warning tax change could hinder MBOs
New tax anti-avoidance measures aimed at small companies may have rung the death knell for management buyouts at SMEs, a leading law firm has claimed.
The Finance Act 2017, passed on Christmas Day, inserted a new anti-avoidance provision into tax law which affects all management buyouts (MBOs) involving 'close companies', which are Irish firms controlled by a small number of people. Its aim is to crackdown on MBOs designed to allow shareholders extract value from a company as capital as opposed to income, thus paying less tax.
According to firm Ronan Daly Jermyn, Revenue's guidance on the implications of this are "contradictory, unclear and very ambiguous".
"The upshot is that shareholders of such companies, who are thinking of selling to existing management, will need to consider the new provisions carefully prior to agreeing to any such sale."
"This measure may act as a practical bar to commercially motivated MBOs. This is unfortunate at best, particularly as it will have most impact on the SME sector, which is the powerhouse of the Irish economy," said the analysis.
"Tax legislation is a matter for the Minister for Finance and the Oireachtas," Revenue said in a statement.
Sunday Indo Business