Calling for tax experts on the Google Motorola thing

So, Google has sold Motorola on to Lenovo. Or as the Beeb has it:

Google has sold struggling US mobile phone company Motorola Mobility to Chinese computer maker Lenovo for $2.91bn (£1.8bn), in a surprise move.

Google had paid $12.5bn for the company less than two years ago.

Bit of an ouchie there you might think. A near $10 billion loss.

But I’m not so sure myself.

They sold the desktop box unit for $2.35 billion.

And there were also $8.5 billion in accumulated tax losses. While Google owned Motorola Mobility there’s no doubt at all that they could utilise those losses to offset Google’s profits. Consolidation and all that.

So the net cost, assuming they kept the company, was more like $1.5 billion. Which means that if they sell the unit now for $2.9 billion then they make a profit: and they keep the stash of patents which is what we all thought drove the acquisition in the first place.

But that does depend upon whether they can keep those accumulated tax losses while also selling off the unit. And that’s what the question is.

I can imagine that they can: have a structure that owns the Mobility business, the patents and the tax losses, sell off Mobility and keep the other two. But the really interesting questions are:

a) Can they do so?

b) Have they done so and

c) Where would we look it up to find out?

12 thoughts on “Calling for tax experts on the Google Motorola thing”

  1. sod that, you HAVE to fisk the LHTD’s latest idiocy. In essence it can be summed up as

    “Here is a graph. One line is going down while the other is going up. But if I extend the declining line using a straight line parallel to the increasing line it would be higher. Therefore TAX GAP HIGHER TAXES

  2. I didn’t finish that properly it should have said

    …TEN BILLION A YEAR IN TAX BIG BUSINESS MUTTER MUTTER”

    The man’s mad, a big chunk of the decline in large business receipts (as he himself includes in a quote) is falling production from oil and gas. Apparently he can magically reverse that decline using only his flawless logic. And a ruler.

  3. If they keep the patents then what they bought and what they are selling are different things, so we can’t directly compare the numbers. And presumably Google can’t necessarily book the cash price difference as a loss, since they are holding on to some (indeed most) of the valuable stuff?

  4. Two observations:

    1) This all depends on the fatcs, the facts, the facts.

    What asset(s) exactly is/are being sold? Is it share capital, with all assets wrapped within that? Or have underlying assets been hived off and sold off or retained separately?

    2) We should be careful to separate out accumulated commercial losses from accumulated tax losses. Certainly tax losses go forward with the entity that suffered them. so, assuming a share sale, the sold entities will take their losses away and Google will lose them.

    That said, tax losses have commercial value, which might well be taken into account by each side when negotiating the sale/purchase price(s). However, the US may have rules about restricting the use of losses following transfers of share capital (Germany for example has some rules about this).

    So, in conclusion, I dunno.

  5. “So, in conclusion, I dunno.”

    Having had the opportunity to read the judgement of my learned friend, I am pleased to say that I concur with his carefully-considered opinions in their entirety.

  6. Is that $8.5 bn of losses which can be used to reduce taxes by $3.73bn or $19.4bn of losses that can be used to reduce taxes by $8.5bn?

  7. Tim, I think you are wrong to assume that, after Google acquired Motorola, it could use its historic net operating losses against the general profits in Google’s consolidated US tax return. There are a set of complex rules designed to stop precisely this (although, being US tax, one can’t rule out the possibility that Google found a way round them).

  8. “Candidly, as Google is involved, we can be sure that there is massive tax evasion motivating this transaction. Our extensive research on this matter, which has involved the use of Google’s facilities (subsidised by their own tax avoidance strategies) have revealed that even though this may appear to the non-tax expert to be a wholly US transaction, probably in the order of several billions of pounds will be lost to the UK Exchequer. This would have been enough to pay for 200 hospitals, 500 primary schools and several thousand social workers.”

    (c) R Murphy, M Hodge

  9. Not a “tax expert”, just a CPA.

    Short answers are as follows:

    1) Perhaps. A lot depends on tax elections/treatments made at the time of acquisition. We don’t know what those elections/treatments are, so it’s hard to know what may or may not be allowed at this time.
    2) No way of knowing at this time. They may have to make a disclosure in one of their public filings, but since SEC filings are outside my area of knowledge/experience, your guess is as good as mine.
    3) Probably not. Once again, unless it pops up in a required public filing I doubt anything will be disclosed. Public corporations typically do not volunteer a lot of information – especially detailed information – about tax effects of such transactions.

  10. But Asset/Share sale is a choice, not a fact, and it’s possible to make a reasonable assumption about what choice Google made. An asset sale would (probably) preserve the losses, while a share sale wouldn’t. I can think of billions of reasons why Google would have picked an asset sale.
    With that reasonable assumption in place you can reach some very plausible conclusions.

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