HMRC clarified tax treatment of AVEVA return of value

Shareholders in engineering and industrial software giant AVEVA Group were handed some good news on their tax burden on Thursday, as the company clarified the UK tax treatment of its £10.15 per share return of value, which was effected by way of an issue and redemption of B Shares on 1 March.

The FTSE 250 firm said it had now received confirmation from Her Majesty's Revenue and Customs that the return of value would not be treated as a distribution, and therefore would not be taxed as income in the hands of recipients for UK tax purposes.

“This is in line with AVEVA's expectations based on tax advice received and as set out in Part XI of the prospectus relating to the combination with the Schneider Electric industrial software business, which completed on 1 March,” the board explained in its statement,

“It is however contrary to the initial view expressed by HMRC, as communicated to and announced by AVEVA in December.”

The company said the issue and redemption of the B shares to effect the return of value would therefore, subject to the shareholder's particular circumstances and any available exemption or relief, give rise to a chargeable gain or allowable loss for the purposes of the United Kingdom taxation of capital gains and corporation tax on chargeable gains.

In relation to that, AVEVA said HMRC had also confirmed that in its view, the issue of the B shares to shareholders should not be treated as a tax-free reorganisation of the AVEVA's share capital, but that instead shareholders in receipt of B shares arising from the B share scheme should be treated as making a part-disposal of their holding of ordinary shares when the B shares were received, which would give rise to a chargeable gain or allowable loss for UK tax purposes.

“On the subsequent disposal, by way of redemption for cash, of the shareholder's B shares, which in theory could also give rise to a chargeable gain or allowable loss, in practice the aggregate base cost attributable to the holding of B shares should equal the proceeds of disposal, such that no further chargeable gain or allowable loss should arise for UK tax purposes,” AVEVA further explained.

“On both disposals the chargeable gain or allowable loss will depend on the shareholder's particular circumstances as noted above.”

Although that aspect of the UK tax treatment of the return of value was different to AVEVA's initial expectation, based on tax advice received at the time - i.e. that it should be the redemption of the B shares rather than their issue that should normally give rise to a chargeable gain or allowable loss - since the overall result for UK tax purposes should be the same, AVEVA said it did not intend to have further discussions with HMRC on the matter.

“Shareholders may wish to seek their own tax advice in this regard,” the AVEVA board noted.