The client was a personal trainer who wanted to raise money to set up a gym in Central London by issuing shares qualifying for relief under the Enterprise Investment Scheme (EIS). The shares were to be issued by New Co. which would own and run the gym. The business model was slightly unusual in that the members of the new gym were to be personal trainers, who would pay a monthly fee to New Co. in order to use the gym facilities with their clients who did not become members.
A US parent company (US Co.) owned the entire issued share capital in a UK company (UK Co.). UK Co. owned the entire issued share capital in three UK companies, MG, GBS and CPP. US Co. intended to make a capital contribution to its UK subsidiary, UK Co. UK Co. would then use that contribution to make capital contributions to GBS and CPP. The purpose of the capital contribution to UK Co. was to enable it to provide its subsidiaries GBS and CPP with funds to acquire capital assets.
UK Co. operated a share registration business in the UK. US Bank had a similar business in the US. UK Co. and US Bank intended to form a JV to which each would contribute its share registration business. The JV vehicle was to be either a UK company registered in England and Wales or a Delaware Limited Liability Company (LLC).
A loss-making company (L Ltd) was sold for £1. At the time of sale, L Ltd had significant accumulated trading losses. At the end of its most recent complete accounting period before sale (the Balance Sheet Date) those losses amounted to around £30 million.
US Co. acquired UK Group in 2004, and a structure was put in place which allowed tax relief to be claimed in both the US and the UK in respect of interest on the financing costs. Advice was sought on whether the structure was later caught by provisions introduced in the Finance (No. 2) Act 2005 to prevent avoidance involving tax arbitrage.