Wolters Kluwer Financial Services has released its annual Top 10 Corporate Actions, a list of the most challenging corporate actions from the past year.
The tax and legal experts at Capital Changes, a part of Wolters Kluwer Financial Services that provides corporate action reporting, tax information and analysis, compile the annual listing to alert taxpayers and their financial and tax advisors to corporate actions that have complex or unusual tax consequences.
Corporate actions in the US indicated signs of a somewhat improving economy in 2010, as some companies emerged from reorganisation and presented common shareholders with distributions.
“Corporate reorganisations can be structured in different ways and for different reasons,” said John Kareken, senior analyst for Capital Changes at Wolters Kluwer Financial Services. “However, they occasionally take a surprising twist that presents special challenges. And sometimes even simple events may include unexpected complications.”
One form of corporate reorganisation that continues to raise special concerns is the spinoff, or demerger as it’s known outside the United States. In nontaxable spinoffs, the key question is how to allocate basis between existing shares and the shares of the new company received as part of the event. Answering this question becomes particularly critical in 2011 as the new cost basis reporting law has now taken effect.
The cost basis reporting law also presents challenges for US taxpayers invested in foreign companies.
“US investors holding non-US companies have always had to contend with special tax rules that apply to cross-border transactions, but the cost basis reporting law is one of the newest concerns,” said Lainey Duggan, senior analyst for Capital Changes at Wolters Kluwer Financial Services. “Many foreign companies don’t provide information on how a corporate event should be taxed under the US Internal Revenue Code, which presents challenges for US financial services firms that are now responsible for reporting basis on foreign corporate actions.”
The Top 10 List for 2010 was selected based on voting by Capital Changes subscribers and corporate actions professionals, as well as other criteria, such as how widely held the affected security was and how complex the tax issues were. That analysis shows the following companies’ corporate actions were especially noteworthy:
Top US transactions:
Burlington Northern Santa Fe Corp
Coca-Cola Enterprises Inc
Verizon Communications Inc
General Growth Properties Inc
Top international transactions:
Royal Dutch Shell plc
Brasil Telecom SA
Cable & Wireless plc
Allied Irish Banks plc