Yahoo! Inc. (YHOO) Might Lose Majority Of Its Profits In Taxes In Alibaba’s IPO

With Yahoo! Inc. (NASDAQ:YHOO)’s shares gaining value in the market, the company is finding it difficult to save its profits from Uncle Sam post Alibaba’s IPO. Yahoo! Inc. (NASDAQ:YHOO) is looking for potential methods to save taxes.

Earlier, the company said that its sales of Alibaba’s shares in the much-hyped IPO would be taxable and that the company is looking for methods to minimize the tax money. Out of its 22.5% stakes in Alibaba, Yahoo! Inc. (NASDAQ:YHOO) is expected to sell 121.7 million shares and retain 401.8 million shares. Alibaba is planning to offer 320 million shares in its first public offering.

Yahoo! Inc. (YHOO)

The matter became more confusing after Alibaba filed an updated prospectus indicating that the Hong Kong branch of the company holds 82% of Yahoo’s shares in Alibaba with the remainder held by the U.S. segment. Youssef Squali, analyst at Cantor Fitzgerald, said that considering the no capital gains taxes in Hong Kong, Yahoo’s 430.9 million shares “should carry no capital gains tax.”

However, Robert Willens, New York Tax expert, said that holding shares in a tax-friendly country is not sufficient to evade the tax liabilities. He further added,

“the fact that the shares are held by YHOO Hong Kong does not mean that the gain from the sale of those shares would escape U.S. tax”, the Hong Kong branch of Yahoo! Inc. (NASDAQ:YHOO) would be considered as a “controlled Foreign Corporation.”

He further added that there are some potential ways to save taxes and said, “There are proven ways to dispose of the stock tax-efficiently. The issue is whether YHOO is willing to pursue them or can pursue them given the restrictions on its freedom to dispose of the shares based on its lock up agreement with Alibaba.”

Earlier, Yahoo! Inc. (NASDAQ:YHOO)’s shares gained 5.61% on Monday because of the upcoming Alibaba IPO.

This article has been written by Prakash Pandey.

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