MEMORANDUM OF ADVICE
1. Arcadia Ltd (‘Arcadia’) is a UK tax resident company that carries on two trades:
(1) manufacturing computers in the UK (“Trade A”), and (2) selling computers via retail shops in the UK (“Trade B”).
2. Arcadia also owns capital assets that are situated in Utopia (as referred to below).
3. The shareholders (and their shareholdings in Arcadia in respect of 100 issued shares) are: Sam (20 shares), Samantha (20 shares), Joe (40 shares), James (20 shares) (collectively the “Shareholders”). Each of the shareholders is UK tax resident.
4. Each of the shareholders acquired their holdings in Arcadia for a price per share of £1. The market value of each share is currently £10,000.
5. The Shareholders own the same number of shares in Super Arcadia, as they do in Arcadia. Super Arcadia is an entity incorporated under the law of a foreign country. Super Arcadia is subject to UK corporate taxation because its central management & control is located in the UK.
6. You have been appointed to advise all of the Shareholders and Arcadia regarding the following scenarios:
a. The tax charges and available tax reliefs under the Taxation of Chargeable Gains Act 1992 that arise if the shares in Arcadia are acquired from each of the shareholders by Super Match Ltd (the purchase price to be satisfied by the issue of shares in Super Match Ltd).
b. The tax charges and available tax reliefs under the Taxation of Chargeable Gains Act 1992 that arise if there is a members voluntary liquidation of Arcadia, with (i) Trade A being transferred to NewCo A (which will be wholly owned by Sam and Samantha); and (ii) Trade B being transferred to NewCo B (which will be wholly owned by Joe and James).
c. What factors will HMRC take into account in determining whether Super Arcadia is a company for the purposes of section 139 of the Taxation of Chargeable Gains Act 1992?
d. Arcadia owns the capital assets, identified below, which are located in Utopia. Arcadia will sell the assets for market value to an unconnected company that is tax resident in Utopia. The UK and Utopia have entered into a double taxation agreement which is identical to the OECD Model Tax Convention. Utopia imposes tax on the disposal of capital assets at 25% of the capital gain (which is collected via the purchaser).
Advise Arcadia in respect of whether the UK and/or Utopia will have the right to tax the disposal proceeds of each of the following assets (and whether the UK will give any UK tax credit for tax incurred in Utopia):-
i. The disposal of real estate situated in Utopia for £10million (Arcadia paid an acquisition cost of £1,000);
ii. The disposal of equipment for £1million used by a permanent establishment situated in Utopia (Arcadia paid an acquisition cost of £100,000);
iii. The disposal of patent rights registered in Utopia for £5million (Arcadia paid an acquisition cost of £1million);
iv. The disposal of shares in a company incorporated and tax resident in Utopia for £50million (Arcadia paid an acquisition cost of £1);
v. The disposal of an aircraft which is effectively operated and managed in Utopia for £1million (Arcadia paid an acquisition cost of £500,000).
Guidelines:
Do summarise your advice to your client at the beginning of the MOA. This provides the examiners with a road map that they can use to understand the detailed arguments in your MOA.
Do present your case law analysis in context. Whenever you mention a particular case, it ought to be clear why you are using your case to make a point. If you mention a stream of cases without mentioning why they are relevant and how they bolster your arguments, you are not going to get much credit for mentioning these cases. The same goes for quotations from cases. Any quotations from cases must be used by you as part of your advice to your client.
Do discuss the case law/articles/books that you refer to in your MOA in your own words. Avoid too many direct quotes. The examiners are most interested in your thoughts and arguments. Too many direct quotes would distract the examiners and they would struggle to locate your contribution in the MOA. Examiners appreciate it when you build your arguments/assertions on a foundation of case law/legislation/secondary sources. However, do not let statements in case law/secondary sources ‘speak for themselves’. Try to express what other judges/authors have stated in your own words. It is of course perfectly appropriate to quote directly from cases/secondary sources (with proper referencing) when you feel that these quotes bring home your point most forcefully. However, quotations that are too long give the impression that you have not applied your mind properly to the issues that have arisen in the case law.
Do not present an opinion/argument from a case/article/book/legislation without an appropriate reference. The examiners would like to know the source of your arguments. It does not matter how and where you provide your reference (i.e. in the text or in the footnotes) as long as you follow a consistent style (any style) of referencing and the references are detailed and accurate.
Do not leave it to the examiner to conclude the result of your analysis. You must come to a proper and clearly expressed conclusion for every question/issue that you analyse in the MOA. This shows that you have a made an attempt to apply the law to the facts provided to you.
Do not write your name on the MOA cover sheet. Mention only (a) The module title (i.e. Commercial Law Spring 2012 or Islamic Finance Spring 2012) (b) Your student number and (c) The number of words in your MOA
Do not include a bibliography at the end of the MOA. As the MOA is not an academic paper, we do not require bibliographies from students.