ERSM60030 - Securities with Artificially
Enhanced Value
Examples of arrangements attracting Chapter 3B charge
The following characteristics have been present in avoidance
schemes counteracted by Chapter 3B:
Example 1: non-arm’s length transactions
- Trading with a subsidiary where either too
much is paid or too little is charged for goods or services
In both cases the value of the subsidiary’s shares will be
increased by the non-arm’s length transactions.
Example 2: forfeiture of shares enhances other shares
- Another shareholder agrees to forfeit
their shares in a way that enhances the value of employee’s
shares.
- Another shareholder agrees to forfeit
their shares in a way that enhances the value of an employee's FURB
(funded unapproved retirement scheme)
In both cases the value of the employee's shares or FURB is
increased by the unusual circumstances of forfeiture of other
shares.
Example 3: alphabet soup
- A company uses special classes of shares
to pay all or most of employees' wages as dividends. Each employee
will have their own class of shares so different dividends can be
paid to each. The shares have no rights other than that the
employer can award dividends at his discretion.
Each dividend is acting as if it were a cash bonus specific to
the employee. Each time the dividend is voted the value of the
share will rise and each time the dividend is paid, the value will
fall again. The accumulated rises for the year will be artificial
increases in value of the shares caught by Chapter 3B - the
legislation disregards the falls in value.
If there is a large number of employees the classes of shares
may be designated A, B, C etc, hence the generic description
"alphabet soup".
Example 4: selective conversion
- Shares are made convertible or similarly
altered after acquisition. Employees convert, etc, their shares but
the other shareholders agree not to, so the non-employees’
shares become worthless.
The effect of the selective conversion, etc, is to enhance the
value of the employees' shares.
