Yahoo will spin off Alibaba shares and risk billions in tax

Yahoo is moving forward with its plan to spin off its Alibaba shares, even though it risks a tax bill of a couple of billion dollars.

In a Yahoo filing posted with the US Securities and Exchange Commission yesterday, it is said that the company's board authorized Yahoo to continue with the proposed spinoff. It added that it’s hoping the process will go without any hiccups.

But the stakes are high – the transaction could carry up to $9 billion (£5.9bn) in taxes.

The transaction is expected to be complete in the fourth quarter this year.

The value of the Alibaba stake is now worth significantly less than when Mayer initially unveiled her spinoff plans. When she announced the plans, they were worth $40 billion (£26.33bn). Now, they’re worth about $22 billion (£13.16bn)

Yahoo CEO Marissa Mayer has, since January, talking about an elaborate restructuring plan that would see Yahoo offload its stake in Alibaba, without incurring taxes, all by transferring them to a new entity.

However, in the first week of September, the US Internal Revenue Service (IRS) declined to issue a private-letter ruling regarding the plan. A week later, the IRS issued guidance (paywall), which does not specifically mention Yahoo, expressing concerns of spinoffs that consist largely of investment assets and minimal operating businesses.

Yahoo will also transfer to Aabaco services for small businesses that it hosts in its Internet cloud.

The company had bought a 40 per cent stake in the Chinese company in 2005 for $1 billion (£660m).