According to a report published in The Wall Street Journal yesterday, the 'new' General Motors could benefit from a massive US$16 billion tax loophole once it emerges from bankruptcy court.
'New' GM will be able to claim the tax benefit stemming from operating losses tied to Motors Liquidation Company, better known as the 'old' GM.
Known as “tax-loss carry forward”, the strategy is usually safeguarded against in bankruptcy court – preventing entities from buying bankrupt companies only to benefit from the tax loophole – but GM’s "363" sale allowed the company to benefit from the old company's losses on a technicality.
“The result seems to retain the cake while eating it,” said Duke law professor Jeffrey Coyne. “They get to sell quickly and without the many procedural protections because this is not a plan. They get to keep the (net operating losses) using a provision that requires the transfer to happen as part of a plan.”
As the bankruptcy sale happened so quickly, GM will likely avoid paying federal taxes for years to come and although some might argue that the US government’s majority ownership of GM makes it a moot point, there are still others set to gain from the tax loophole.
The UAW’s retirement fund now owns 17.5 per cent of GM and will also be exempt from paying taxes for the next several years.
On the other side of the coin, companies like Ford that didn’t take a government handout will be at a disadvantage, paying billions in taxes that GM will avoid.
With: The Wall Street Journal