AKE (ASX) Merger: Yes or No

Originally posted by akgo01: ↑

Scheme Booklet Section 8.4 is about Risks relating to Tax Matters.

Because I never studied taxation laws, there are many details and implications contained in this Section which I don't understand. So on this occasion I am going to share here only 2 major risks which I think I understand.

1/ The first risk which I clearly understand is what we already know. The risk is if ATO doesn't give us rollover relief under Subdivision 124-M of the Australian Tax Act, then those of us who bought AKE shares less than the sp when the merger occurs have to pay CGT.

Kroll says:
"It ispossible that the Class Ruling will not be obtained,or that there may be delays to approval that havenot been anticipated as at the date of this SchemeBooklet." (page 183)

2/ The second risk is if the NewCo is treated as a US corporation for US federal income tax purposes by the US Internal Revenue Service under Section 7874 of the Code.

If this happens, then any dividend we may receive in the future will be subject to US withholding tax (that is tax liability instead of franking credit!) and then we have to pay income tax to ATO.

Kroll says:
"If NewCo were to be treated as a US corporation for US federal income tax purposes, it could be subject to substantial US tax liability, in addition to tax liability in its country of residence, and the gross amount of any dividend payments to its non-US holders could be subject to US withholding tax." (page 183)

I understand "in addition to tax liability in its country of residence" as to mean that the NewCo, besides having to pay tax to the US, might have to also pay tax to Ireland where it wants to reside for tax purposes. This means the tax minimising strategy the NewCo wants to apply may back fire and costs the NewCo double tax liabilities. (Very risky!)

NewCo doesn't expect to be treated as a US corporation for US federal income tax purposes under Section 7874 of the Code. But Kroll warns:

"However, the application of the rules under Section 7874 of the Code is complex and subject to uncertainty, and there is limited guidance regarding their application. Moreover, the application of Section 7874 of the Code to the facts and circumstances of the Transaction is uncertain." (page 183)

Isn't that uncertainty scary? Just imagine how many hundred million dollars the NewCo will have to spend for lawyers just to settle that if the US Internal Revenue Service considers the NewCo as a US corporation for US federal income tax purposes.

Considering these risky factors, I vote NO.

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By the way, any S/H in NZ received their booklet (or, more important) voting forms yet?