Objective and purpose
The assignment will focus on an advisory opinion associated with the setting up of a proposed structure. The trainee will be expected to assess various technical risks and outcome probabilities.
Background
Your name is John Snow and you are employed as a Tax Manager by Icepiercer (Pty) Ltd (‘Icepiercer’). Icepiercer is a firm of chartered accountants situated in Paarl. Your firm has a new client that operates a food franchise in Paarl, Western Cape.
Issue a formal opinion to Mr Round where you address all his questions raised. NYC/SC/C
Student identified minimal or none of the technical issues and prepared a tax opinion that is poorly laid out and is written in poor language giving rise to ambiguities. Tax opinions are not sufficiently supported by valid facts and laws and does not contain the appropriate language that complies with the TAA. (Student rated as NOT YET COMPETENT (NYC) in opinion writing skills).
Student identified many of the technical issues and prepared a tax opinion that is reasonably laid out. The language is appropriate but contains some ambiguities. Tax opinions are largely supported by valid facts and laws. The opinion contains the appropriate language that complies with the TAA. (Student rated as having SOME COMPETENCY (SC)in opinion writing skills).
Student identified most of the technical issues and prepared a tax opinion that is well laid out and is written in professional and understandable English without ambiguity. Tax opinions are supported by valid facts and laws and contains the appropriate language that complies with the TAA. (Student rated as COMPETENT (C) in opinion writing skills).
Background
To fund the launch of the relevant stores, Freeze Queen provided loan funding to Freeze Castle who in turn provided loan funding to the Freeze King. Freeze King provided loan finding to each of the store companies. The value of the loan amounts as at 30 June 2021 are as follows:
Proposed Transaction
The Freeze Group is currently undergoing a corporate restructuring and is therefore forced into the following sequence of events on 30 October 2021:
Freeze Queen will advance an amount equal to the debt owed by each Store Company to Freeze King (Step 1 loans). In aggregate, these amounts total R400 000.
Each of the Store Companies will use that advance to repay their shareholder loans owing to Freeze King
Freeze King will use the funds in step 2 to repay portion (R400 000) of its loan owing to Freeze Castle.
An amount of R50 000 remains outstanding on the loan owing to Freeze Castle.
Freeze Castle uses the funds received in step 3 to repay that portion (R400 000) of its loan owing to the Freeze Queen.
An amount of R450 000 remains outstanding on the loan owing to the Freeze Queen.
Freeze Queen waives the Step 1 loans to the Store Companies; and
The Store Companies transfer all of their assets (other than assets it elects to use to settle any debts incurred by it in the ordinary course of its trade) to Freeze King, in anticipation of or in the course of liquidation, winding up or deregistration.
Advice required
What are the tax implications for the Store Companies in respect of their assessed losses, the reduction of the loans and allowance assets?
What are the tax implications for Freeze Queen in relation to the above proposed transaction?
What is the tax implication for the transfer of the Store Companies assets to Freeze Queen?
What are the VAT implications of the repayment of the loan between Freeze Castle and Freeze Queen?
What remedies in the Act can the Freeze Group rely on should SARS have an opposing view to the above opinions and impose an understatement penalty against the Freeze Group during a SARS audit?
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