Yahoo Inc is reconsidering its plan to spin off its US$23 billion stake in Alibaba Group Holding Ltd (阿里巴巴) after US federal tax authorities declined to rule in advance on whether the transaction would mean huge capital gains taxes for Yahoo or its shareholders.
Yahoo disclosed in a securities filing on Tuesday that the US Internal Revenue Service (IRS) told the company on Wednesday last week that it would not provide any guidance about the tax liability related to the spinoff ahead of the deal.
The company said that its own tax advisers still believed the spinoff of its 15 percent stake in Alibaba — a leading Chinese e-commerce company — would be tax-free, in part because it would be bundling a small-business division with the Alibaba stock into a new company called Aabaco Holdings.
However, Yahoo said its board was now considering its options in light of the IRS decision.
Analysts say Yahoo’s options could include restructuring the spinoff or selling all or part of its 15 percent stake in Alibaba.
Yahoo shareholders have been eagerly awaiting the spinoff, which analysts say accounts for far more of Yahoo’s stock price than its core advertising business.
Despite some progress in the three-year effort by chief executive officer Marissa Mayer to revive the moribund company, Yahoo continues to lose ground to Google Inc and Facebook Inc.
The Alibaba spinoff was intended to be a reward to Yahoo’s long-suffering shareholders.
“It’s a big setback for Mayer,” Ironfire Capital investment fund founder Eric Jackson said, who has been agitating for Yahoo to do more to unlock the value of its assets.
“This was going to be the one feather in her cap, and now it’s seemingly not going to happen,” he said.
The Alibaba spinoff has been in doubt since May, when an IRS official warned that the agency was scrutinizing such transactions, which involve combining a large investment stake with a small operating business.
Yahoo shares fell about 3 percent in after-hours trading on Tuesday after the company disclosed the IRS ruling.
If Yahoo proceeds without the IRS opinion, it might ultimately have to defend its move in court, independent corporate tax consultant Robert Willens said.
An IRS auditor, reviewing the company’s books several years down the road, could declare that the spinoff was taxable.
Yahoo would probably go to court to challenge the decision and Willens said the company would most likely prevail.
The rules governing the size of the operating business in this kind of spinoff have long been cemented in precedent, he said, and should not be changed on a whim.
Any auditor who raised the issue would be “adventurous,” he said.
“The fact is that the IRS’ ruling is not the law in the area,” he said in a telephone interview. “It’s divorced from the law.”
Analysts have estimated that the company would owe about US$9 billion in taxes if the transaction were fully taxable.
In structuring the spinoff, Yahoo proposed to transfer that liability to Aabaco. So in theory, Mayer could proceed with the spinoff and focus on running Yahoo, leaving Aabaco shareholders to bear the risk of an audit.
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