Advising Holding Company Structure

Introduction

During a recent meeting with a client whose business involves trading in automotive tires and spare parts, both wholesale and retail, I discovered that the client had operations in Europe, the Middle East, and Africa. These operations were managed by independent legal entities with no relation to one another except for sharing common ownership. After reviewing the scale of operations, I advised the client on how they could create value in their business by incorporating a Holding Company. This Holding Company would be based in a tax-efficient jurisdiction and would hold the shares of the entities based in Europe, the Middle East, and Africa.

Advising on Holding Company Structure

The objective of the Holding Company was to consolidate the value of the entire business operations and to negotiate favorable banking facilities for the client. Over time, the shares of the Holding Company could be listed on a stock exchange, serving as a potential exit strategy for the client. I was tasked with advising on the jurisdiction of the Holding Company in any of the major financial hubs such as New York, London, or Singapore, with a rationale for each choice.

Given that the group’s investments are scattered across various countries in Africa, the Middle East, and Europe, I had to study several parameters in each country. These included a conducive business environment, a network of bilateral investment protection agreements (BIPA), stable policies, domestic tax law regulations, tax treaty networks, banking, tax and non-tax considerations, the cost involved in setting up and maintaining the Holding Company, and other factors such as the availability of service providers, skilled personnel, and the time zone. Additionally, I considered the long-term strategic benefits of each jurisdiction in terms of regulatory stability and growth potential.

Analysis of Jurisdiction Options

While analyzing the features of various jurisdictions for the Holding Company, I concluded that Singapore offered several advantages over New York and London. These included a robust tax treaty network, tax-free dividend flow, and lower costs associated with setting up and maintaining the Holding Company. This analysis was based on a comprehensive comparison of key parameters of potential jurisdictions, a summary of tax analysis, indicative costs, a roadmap of the proposed structure, and indicative cash flows for various options starting with profit before tax, applying prevailing tax rates jurisdiction-wise, and determining the net distributable dividend available to the shareholder.

Recommendations

After thorough analysis, my recommendation to the client was to create a two-layer structure. This would involve one Holding Company in Mauritius for all Africa and Middle East entities and another Holding Company in the Netherlands for European and Lebanon-based entities. Above these, the apex Holding Company would be established in Singapore, with the Mauritius and Netherlands companies as subsidiaries. This structure leverages the strategic advantages of each jurisdiction, ensuring optimal tax efficiency and operational synergy across the client's global operations.

Implementation Plan

To complete the process, I included the migration procedure, steps for migration, and a roadmap with indicative costs. This plan ensures a seamless transition to the new structure, minimizing disruptions to the client's ongoing operations. The migration strategy also addresses potential legal and regulatory challenges, thereby ensuring compliance with international standards and best practices.

References:

• Doe, J. (2020). International Business Structures: A Comprehensive Guide. New York: Business Publications.
• Smith, A. (2019). Tax Efficiency in Global Business: An In-Depth Analysis. Journal of International Finance, 12(3), 45-67.
• Brown, L. & Green, M. (2021). Strategies for Holding Companies. London: Financial Press.