“In order for a spinoff to be tax-free, there needs to be a trader business, not just a portfolio holding”, said Steven Rosenthal, a senior fellow of the Urban-Brookings Tax Policy Center, in an interview Monday. “Notwithstanding that the IRS did not previously indicate any intention to challenge the Spin-Off when it expressed its determination not to rule on Yahoo’s request, there is a risk that the IRS may challenge the conclusions reached in the opinion, and a court could sustain such a challenge”.
Based on Alibaba’s close on 28 September of United States dollars 59.24 per share, Yahoo’s 384 million shares in the e-commerce company are worth USD 22.75 billion. Yahoo paid $1 billion in 2005 for a 40 percent stake in Alibaba, in a deal credited to the USA company’s co-founder Jerry Yang. Doing the transaction in a tax free manner is a complicated process, but one which shareholders hope will maximize their return.
The shares of Yahoo rose as much as 4.3 per cent in extended trading. The company will include the small business unit of Yahoo as part of the transaction.
The search giant elaborated in a new Form 8-K filed with the U.S. Securities and Exchange Commission on Monday, outlining a timeline of back-and-forth rulings and new policies instilled by the IRS and U.S. Department of the Treasury that would seemingly affect – if not derail – the proposal.
What Yahoo!’s bean counters came up with was a plan that would transfer the shares to the Aabaco subsidiary and distribute shares in the new company to current Yahoo! shareholders on a pro-rata basis.
Yahoo plans to proceed with a spinoff of its stake in Chinese e-commerce giant Alibaba, even if the Internal Revenue Service doesn’t grant it tax-free status.
Completion of the transaction is expected to occur in the fourth quarter of 2015, subject to the conditions described above.