It’s almost summer, and we all know what that means: it’s time to start working on that beach body. That’s right: it’s time to start skinnying down. We need to trim the fat. Lose the dead weight. Cut down on all those Taco Tuesdays. It might not be a fun process, but we’re hoping it’ll be worth it when we look all fantastic and fit at that July 4th beach BBQ.
Corporations have their own version of the beach body prep process, and it’s called a “skinny down distribution.” The goals are the same—trim the fat, lose the dead weight, cut the excess spending—but instead of trying to fit into that trendy one-piece swimsuit, they’re trying to make themselves more attractive for potential foreign mergers or acquisitions.
In these situations, the foreign company is almost always smaller than the target company. This is important, because the U.S. has pretty strict tax laws about corporations with interest in foreign companies. Basically, unless the American side of the M&A represents less than 60% total ownership, the corporation is not going to be eligible for the tax benefits associated with multinational businesses. So when the target company embarks on its skinny down distribution journey, it’s essentially going on a diet until it drops below that 60% threshold. This might involve selling off assets, or it could involve issuing a nice, big dividend to shareholders. In some cases, the target company might even transfer some of its assets to the foreign company.
The IRS has a ton of rules about which skinny down distribution activities are legit and which aren’t, because they want to make sure companies aren’t going around merging and acquiring just to get out of paying their fair tax share, and the rules occasionally change. So if our company has caught the eye of a foreign corporate suitor and we’re thinking we might get our skinny down distribution on and see if it lands us an M&A deal, we should most definitely consult a tax professional before we start, um... ropping assets like they’re hot.
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Finance: What is Capital Gains Distribut...21 Views
Finance a la shmoop what are capital gains distributions? cap gains app
hap-happy day.. your mutual fund invested a hundred grand in whatever.com it then [Mutual fund appears]
was bought by Google for three hundred grand
three years after you invested at least that was your portion that three hundred
grand well you had a gain of two hundred grand
on your investment and because Google paid cash not stock in acquiring
whatever.com on your books the gain was realized ie turned into cash so then the
mutual fund has to distribute to you that capital gains ie the cash it [Capital gains definition appears]
realized in selling the company to the kindly loving people at Google whose
motto is do only a little bit of evil right so one more time for the people in
the back how does this capital gains distribution thing work well the fund
manager looking out for your mutual fund may sell or buy some of the stocks or [Fund manager appears with stocks and bonds]
bonds in your fund if she sells and makes a profit well then that profit or
the proportionate gains part of it has to be distributed to the fund holder and
that's you and then of course you got to pay taxes
on that distribution if your fund is held in a normal account like it's in a
401k or an IRA you'll pay taxes on it later but not right away and if you own
it personally well you'll pay at that year yeah Uncle Sam always needs to get [Uncle Sam appears]
his cut when there's capital gains distribution if he doesn't he gets angry
and you know you wouldn't like Uncle Sam when he's angry [Uncle Sam turns into Hulk]
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