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Tax Efficient Hive-Outs

by Taxkey Jan 30, 2025 Taxation

Unlocking Growth Through Tax-Efficient Company Restructuring

As businesses grow and evolve, it’s not uncommon for multiple businesses to operate under the umbrella of a single company. Over time, the need to separate these businesses into distinct entities can arise. Whether it’s to attract external investment, facilitate succession planning, prepare for a future sale, or minimize risk exposure, business hive-outs offer a tax-efficient way to achieve these objectives.

This article delves into the benefits and tax considerations of hive-outs, presenting a practical guide for business owners and accountants looking to streamline corporate restructuring.

What is a Hive-Out?

A hive-out is a corporate restructuring mechanism where a business or part of a business is transferred from one company to a newly created company. The transfer is typically structured as a "Share-for-Undertaking Three-Party Swap," whereby the company transfers one of its businesses to a newly incorporated company in consideration for the new company issuing shares in it to the shareholders of the transferor company. This type of reconstruction is commonly referred to as a “hive out”.  

By leveraging Ireland’s tax relief provisions, hive-outs can often be executed on a tax-neutral basis, provided they are structured correctly and satisfy specific conditions.

Take the following example:

Mr. and Mrs. Bloggs each own 50% of the shares in Company A, which operates both a retail and wholesale business. They set up a new company with the same shareholding. The wholesale business is transferred to Company B in exchange for Company B issuing shares to Mr. and Mrs. Bloggs. The result is that the business transferred is ‘hived out’ to a new company which has common ownership, but which is not a group company.


Common Reasons for Hive-Outs

Business owners may choose to undertake a hive-out for several strategic reasons:

  • Facilitating Investment: Attracting external funding often requires isolating the business being financed into a standalone entity.
  • Succession Planning: Separating businesses can simplify the transition of ownership to the next generation.
  • Maximizing Value for Sale: Preparing a business for a potential sale by segregating assets or operations can enhance its marketability.
  • Risk Management: Isolating different business activities into separate entities can protect one business from the financial risks of another.

Key Tax Considerations

A successful hive-out requires a thorough understanding of the relevant tax implications. Several taxes come into play during the process:

  • Capital Gains Tax (CGT) for the Transferor Company: Normally, transferring chargeable assets triggers CGT. However, under Section 615 of the Taxes Consolidation Act (TCA) 1997, relief is available if certain conditions are met, such as ensuring the transfer is part of a bona fide scheme of reconstruction and not aimed at tax avoidance.
  • CGT for Shareholders: Shareholders may face CGT on the effective disposal of part of their investment. Relief under Section 587 TCA 1997 can defer this charge if the reconstruction is for commercial reasons and involves no direct consideration other than shares in the new entity.
  • Corporation Tax Losses and Assets Transfer: Under Section 400 TCA 1997, unused trading losses can be transferred to the new company if 75% of shareholders remain consistent across the transferor and transferee companies within a three-year period.
  • Stamp Duty: Stamp duty on asset transfers can be mitigated using Section 80 TCA 1997, provided the reconstruction meets criteria such as maintaining continuity of ownership and being executed for genuine commercial purposes.
  • Income Tax on Distributions: Section 130 TCA 1997 generally excludes shares issued in a hive-out from being treated as a taxable distribution when conducted as a bona fide reconstruction.
  • Value-Added Tax (VAT): Transfer of Business Relief under VATCA 2010 ensures VAT doesn’t apply to asset transfers constituting an independent economic activity.
  • Tax Clearance Requirements: For transfers involving goodwill or property exceeding €500,000, a CG50 form is needed to confirm no CGT liability exists.

Benefits of Tax-Efficient Hive-Outs

When executed correctly, hive-outs can:

  • Minimize tax liabilities for all parties involved;
  • Ensure a smooth transition of specific assets and operations into a separate company;
  • Enhance the ability to secure investments;
  • Facilitate the sale or transfer of one business without impacting the other business.
  • Protect business assets from cross-contamination of commercial risk.

Practical Tax Steps for a Successful Hive-Out

  • Seek Expert Advice: Engage with tax advisors, accountants, and legal experts to assess the feasibility and implications of a hive-out.
  • Conduct a Tax Review: Identify potential tax liabilities and ensure all applicable reliefs are utilized.
  • Structure the Transfer Properly: Adhere to statutory requirements under TCA 1997 and other relevant legislation to avoid triggering unnecessary tax costs.
  • File Necessary Documentation: Timely filing of forms, such as stamp duty returns and CG50 applications, is critical to claiming tax reliefs.
  • Monitor Post-Transfer Compliance: Ensure ongoing adherence to conditions that preserve tax reliefs, such as maintaining shareholder continuity.

Conclusion

Hive-outs offer a strategic pathway for businesses to adapt to changing needs while maintaining tax efficiency. However, the process requires careful planning and expert guidance to navigate the complex tax landscape. With the right approach, business owners can achieve their goals of growth, risk management, or succession planning without incurring unintended tax burdens.

At Taxkey, we specialize in advising businesses on tax-efficient restructuring strategies. If you’re considering a hive-out or other corporate restructuring, get in touch with our team for personalized guidance.

DISCLAIMER This article does not constitute professional accounting, tax, legal or any other professional advice. No liability is accepted by Taxkey for any action taken or not taken in reliance on the information set out in this presentation. Professional accounting, tax, legal and / or any other relevant professional advice should be obtained before taking or refraining from any action as a result of the contents of this article. 

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