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Does anyone know why Yahoo! can't simply distribute its Alibaba shares to the Yahoo! shareholders? I'm assuming it would incur a tax liability of some kind but

Does anyone know why Yahoo! can't simply distribute its Alibaba shares to the Yahoo! shareholders? I'm assuming it would incur a tax liability of some kind but I haven't seen any explanation or discussion as to why it's not as good an option as the spin-off plan.

chuhnk 12y ago
Because it would be taxed at 40% vs the spin off which would mean absolutely no tax.
- jackgavigan 12y ago
  Do you have a source where I can read about the tax rules that apply?
  - charlesdm 12y ago
    Stock swaps and splits are generally tax exempt in most jurisdictions.
  - esturk 12y ago
    >http://www.bloombergview.com/articles/2015-01-28/yahoo-would-rather-not-pay-taxes-on-its-alibaba-shares http://www.bloombergview.com/articles/2015-01-28/yahoo-would... This article is helpful in understanding this spinoff. Namely it explains some pretty interesting requirements for this spin-off to happen. The company have to have a function (however lame like Halloween costume rental), and that there can't be any pre-arrangement for Alibaba to buy back the stock before the spin-off, etc.
    - jackgavigan 12y ago
      Good article. Thanks for the pointer.
ucha 12y ago
It's the same thing. Distributing the shares or creating a spin-off that current Yahoo shareholders will own is the same. The other option would have been to sell the Alibaba shares and give the proceeds to shareholders but in that case, they'd have to pay 35% in taxes.
- jackgavigan 12y ago
  I don't think it is quite the same thing. This plan will result in Yahoo!'s shareholders being given shares in SpinCo, which will own Alibaba shares. Distributing the Alibaba shares directly to the Yahoo! shareholders would result in them owning Alibaba shares directly.
  - Someone1234 12y ago
    Maybe its about power/control. If they gave out the shares then most shareholders would likely just resell them onto the open market. However with the spin-off now they have a great little power house to direct and influence Alibaba.
smackfu 12y ago
Well, the Yahoo shareholders already own the shares of Alibaba, since they own Yahoo and Yahoo owns the Alibaba shares.
caseyf7 12y ago
It's because the shares are held in a structure called a VIE which is essentially an offshore holding company in the Cayman Islands. By keeping the shares offshore, the shareholders can determine when the shares are repatriated to the U.S. and delaying payment of taxes on the capital gain. For instance, shareholders could wait until they have large capital losses to offset the gains. It's all about giving the shareholders the power to choose when to pay the taxes.
deleted 12y ago
[deleted]

chuhnk 12y ago

Because it would be taxed at 40% vs the spin off which would mean absolutely no tax.

jackgavigan 12y ago
Do you have a source where I can read about the tax rules that apply?
- charlesdm 12y ago
  Stock swaps and splits are generally tax exempt in most jurisdictions.
- esturk 12y ago
  >http://www.bloombergview.com/articles/2015-01-28/yahoo-would-rather-not-pay-taxes-on-its-alibaba-shares http://www.bloombergview.com/articles/2015-01-28/yahoo-would... This article is helpful in understanding this spinoff. Namely it explains some pretty interesting requirements for this spin-off to happen. The company have to have a function (however lame like Halloween costume rental), and that there can't be any pre-arrangement for Alibaba to buy back the stock before the spin-off, etc.
  - jackgavigan 12y ago
    Good article. Thanks for the pointer.

ucha 12y ago

It's the same thing. Distributing the shares or creating a spin-off that current Yahoo shareholders will own is the same. The other option would have been to sell the Alibaba shares and give the proceeds to shareholders but in that case, they'd have to pay 35% in taxes.

jackgavigan 12y ago
I don't think it is quite the same thing. This plan will result in Yahoo!'s shareholders being given shares in SpinCo, which will own Alibaba shares. Distributing the Alibaba shares directly to the Yahoo! shareholders would result in them owning Alibaba shares directly.
- Someone1234 12y ago
  Maybe its about power/control. If they gave out the shares then most shareholders would likely just resell them onto the open market. However with the spin-off now they have a great little power house to direct and influence Alibaba.

smackfu 12y ago

Well, the Yahoo shareholders already own the shares of Alibaba, since they own Yahoo and Yahoo owns the Alibaba shares.

caseyf7 12y ago

It's because the shares are held in a structure called a VIE which is essentially an offshore holding company in the Cayman Islands. By keeping the shares offshore, the shareholders can determine when the shares are repatriated to the U.S. and delaying payment of taxes on the capital gain. For instance, shareholders could wait until they have large capital losses to offset the gains. It's all about giving the shareholders the power to choose when to pay the taxes.

deleted 12y ago

[deleted]