PO remains one of the most pressing topics in the investment market in 2024-2025: with the current key rate, it is becoming an unaffordable luxury to attract outside capital to finance large investment projects by ‘lending’ to a company - interest on loans (up to 30% and above) will eat up even the highest profitability. A number of the most important companies can, of course, count on state subsidy programmes, but, firstly, in difficult conditions for the budget they tend to run out quickly, and secondly, not every taxpayer will be able to count on them.
In this regard, to finance investments, large companies are increasingly turning to raising capital through IPOs - it is always more profitable to share profits than to pay high interest rates.
However, in order for investors to ‘bring’ their capital to the company, it will have to show such prospects and ‘figures’ that will leave no doubt about the prospects of the company as an investment instrument: after all, even taking the money to the bank (with a guarantee of their return), the conditional investor will receive 20 per cent or more per annum, and in the framework of the purchase of a share in the company ‘return’ is not guaranteed.
Not every company will be able to show such figures on its own - often, a large-scale and complex project will be required, covering both revenue growth and market capture, as well as increased profitability through cost reduction. As part of the latter, it is necessary to analyse the efficiency of all ‘expense’ items, including taxation, which will require the construction of an effective group structure.
Business growth is rarely fully predictable, and even more rare is the company that develops the legal structure of the future group in advance: often, separate legal entities or branches are created for new areas or regions of activity, and sometimes, guided by legal risks, a whole complex of legal entities is created within one business unit. As the group grows, the number of intra-group turnovers also increases: in some cases, long-term loans are taken out to finance the expansion of certain areas, in some cases, consolidation of a number of specialised functions within one group company leads to the emergence of new intra-group services (IT, accounting or legal support, use of intellectual property, etc. ). ).
The unsystematised process of such growth and the emergence of a wide range of ‘patch’ solutions lead to the fact that the resulting structure:
- Non-transparent - the mechanism of its functioning can be understood only by those who work within it;
- Inefficient in terms of business management, which hinders the process of implementing new solutions, increases the costs of operating such a structure and negatively affects the very process of operational management from the parent company to the smallest business units;
- Finally, it is inefficient from a tax point of view:
- Firstly, such structures rarely follow a common methodology of accounting and tax accounting, which leads to ‘accounting’ tax risks and inconsistent approaches to individual transactions or groups of transactions;
- Secondly, a non-systematic approach to organising the movement of financial flows within the group (both financing and raising profits ‘upwards’) often leads to an increased tax burden;
Thirdly, there are often ‘distortions’ in the tax burden between individual companies or business units, with some companies generating large tax losses and others generating large profits, resulting in an inflated tax burden for the group as a whole and an inability to utilise available tax reserves;
- At the same time, identifying and eliminating factors of tax ‘inefficiency’ requires a systematic approach. For more details on a set of measures aimed at improving the tax efficiency of business, see the article by our expert Ivan Tsvetkov in the Vedomosti newspaper.
Thirdly, there are often ‘distortions’ in the tax burden between individual companies or business units, with some companies generating large tax losses and others generating large profits, resulting in an inflated tax burden for the group as a whole and an inability to utilise available tax reserves;
Regarding reserves: often intensive growth leads to unconsciously ignoring the ways in which the group can reduce its fiscal burden, including available tax incentives.
Approaching an IPO with such a structure, even with the fastest growing and most profitable business, it is difficult to demonstrate investor-appealing performance - indeed, even valuing such a company and its growth prospects will be difficult.
At the same time, identifying and eliminating factors of tax ‘inefficiency’ requires a systematic approach. For more details on a set of measures aimed at improving the tax efficiency of business, see the article by our expert Ivan Tsvetkov in
the Vedomosti newspaper.
