2. Asset identification
The identification of the assets that are the subject of the valuation exercise is key. Asset identification can be difficult for multinational groups, where ownership can become confused. This is often a key focus of the valuation.
What is happening to the assets
Some intragroup reorganisations involve the novation of an asset with an encumberment, such as the expectation that part of the functions associated with that asset will be performed by the transferor. Examples include:
- the novation of customer contracts, with an expectation that the transferor will continue to provide customer relationship management; and
- the transfer of technology, with an expectation that the transferor will continue to provide R&D services.
Whether the asset should be valued on a standalone basis without restriction on use, on an ‘encumbered’ basis or on some other basis depends on asset identification and the definition of value in point – see UK taxing regime (in section 3. Context and setting).
Goodwill
The value of an entity can be expressed as the sum of its tangible assets, intangible assets and any goodwill.
On any intragroup transfer of intangibles, consideration should be given to whether there has also been a disposal or part disposal of goodwill.
For there to be a disposal of goodwill there generally has to be a disposal of a ‘business’ or ‘ongoing concern’. A transfer of employees is often indicative of a transfer of a business and therefore potentially goodwill. Tax authorities are likely to consider the substance of the reorganisation over the form of any legal transfer agreement. This typically depends on whether a collection of assets has transferred and the asset mix, and whether the assets are capable of generating income in isolation.
Asset class |
Examples |
|
Working capital |
Operating cash, debtors, creditors, stock, accruals |
|
Fixed tangible assets |
Land and buildings, property, plant and equipment, and furniture and fixtures |
|
Non-operating tangible assets |
Free cash not required for operating purposes and sundry intercompany funding |
Asset class |
Examples |
|
Identifiable intangible assets |
Trade names, technology, software, customer relationships and non-compete agreements |
|
Goodwill |
Residual goodwill, of which a proportion can be allocated to an assembled workforce. |
