Under this scenario, the amount of stock purchased would need to be sufficient to provide sufficient cash to pay all pre-opening start up costs, plus provide a cash reserve, plus pay for certain inventory items that must be purchased for cash since vendors may not be prepared to extend open account credit terms to ABC U.K. immediately notwithstanding the financial strength and track record of the parent company.
Another option to consider would be a loan from the ABC parent company to its U.K. subsidiary. Part of the determination about whether the money advanced by the ABC parent the new venture in the United Kingdom would involve the tax treatment of an investment or a loan. It is important for ABC to recognize the tax implications under both U.S. law, and the laws of the United Kingdom. In this regard, the company would be well advised to retain the one of the Big Four accounting firms in the United States as consultants to advise ABC on the best and safest way to structure financing of this new venture to minimize the company's total tax liability in the U.S. and the U.K. combined.
Domestic sources of financing in the United Kingdom would likely include sources of short term and long term credit. In the area of short-term credit, one would hope that ABC could convince certain vendors to extend credit to ABC's new warehouse operation for the purchase of inventory. This might be more difficult for companies that have never done business with ABC before.
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