Yahoo Inc filed formal documents late on Friday to spin off its 15 percent stake in Alibaba Group Holding Ltd (阿里巴巴), the Chinese e-commerce giant, in the fourth quarter of this year.
However, in the filing with the Securities and Exchange Commission, the Internet company warned shareholders that it might cancel the spinoff if US federal tax authorities failed to provide written assurance in advance that the transaction would be tax-free to shareholders.
Yahoo’s 384 million Alibaba shares are currently worth about US$32 billion.
The spinoff, announced in January, is intended to transfer the value of that stock to Yahoo’s shareholders without incurring the capital gains tax of more than US$10 billion that would be due if Yahoo simply sold the stock and returned the cash to its shareholders.
Key to the plan is Yahoo’s intention to include its small-business services division in the spinoff, which is to be called Aabaco Holdings.
Under federal law, such spinoffs must include an operating business, not just stock holdings, to qualify for tax-free status. Historically, companies have bundled tiny businesses with huge stock portfolios in their spinoffs to meet the letter of the law.
However, a US Internal Revenue Service (IRS) official in May said that the government was considering tightening the rules, potentially affecting the Yahoo plan.
In its securities filing on Friday, Yahoo said that Chinese tax authorities had imposed new rules in February that would potentially subject such transfers to a 10 percent tax, and there has been little guidance on how to interpret those rules.
Yahoo chief executive Marissa Mayer has sought to reassure shareholders that the deal would proceed as planned, but the company’s stock has fallen as Wall Street worried that the deal might not pass muster with the IRS.
Mayer is sure to face questions about the transaction on Tuesday, when she holds a Web cast with analysts to discuss the company’s second-quarter financial results.
In its filing, Yahoo acknowledged the risks and gave itself the option of canceling the deal.
If it does proceed with the spinoff, but tax authorities later impose a hefty bill, Yahoo said that Aabaco — and indirectly, its shareholders — would have to pick up the costs.
Yahoo did not name an executive team or board for Aabaco, nor did it provide details of the small-business unit that it plans to include in the company.
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