After five months of finessing the deal, Volkswagen and Porsche Holding SE have figured out how to sidestep the tax man: VW's €4.5 billion purchase of the remaining 50.1-percent stake in Porsche's sports car unit was going to mean a tax liability of €1.5 billion ($1.9B U.S.) due to the Baden-Württemberg Finance Ministry. Volkswagen was going to be on the hook for that, and the amount threatened to scuttle the deal.

Previously, the two companies planned to create a holding company to control the remaining share until 2014, at which time it could be transferred to VW without paying a tax. Beyond the two-year wait just to close the deal, that plan also meant that VW couldn't fully integrate Porsche into its operations and so be forced to deal with Porsche for two years at an inefficient, arm's-length distance.

Th new plan, still awaiting final approval from the state authorities, is simple. The Porsche Holding SE empire, which isn't small, owns Dr. Ing. h.c. F. Porsche AG, the unit that makes the sports cars. If VW purchases the unit outright from the holding company, the purchase is taxed. Instead, VW plans to give Porsche Holding SE the €4.5 billion purchase price as well as one voting share of VW stock. By 'giving' Porsche Holding a stake in VW, even if it is just one single share, it turns an outright purchase into a corporate restructuring. A tax-free corporate restructuring, specifically. What's German for "Voilà!"?

According to a story in Reuters, Porsche Holding has been given legally binding notice from the state that is will not need to pay any taxes on such a transaction. VW said it's still looking at its options for ingesting the 50.1-percent stake, but it looks like the end of that deal just got a lot closer. Now about that $2.6 billion investor lawsuit...


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  • 33 Comments
      Dvanos
      • 2 Years Ago
      I bet Porsche has a department full of slick accountants.
      mr.vw
      • 2 Years Ago
      So with VW saving all this money VAG can start offering more european models in north america now?? I wonder if VAG is going to continue flipping the proverbial finger at north america and continue to offer the limited watered down german product line for north america?.... let me guess it isn't coming state side!
      All_mine
      • 2 Years Ago
      Yea yea, blah blah. People always complain when corporations figure a way to pay less, or in this case, no taxes. Those same people will go to their accountant in the beginning of the year to determine how they can pay less in taxes via benefits from real estate, properties, donations, etc. In the end most of us look for a way to pay as little taxes as possible, in some cases, we pay thousands in fees in order to save tens of thousands. So if you worry about a company using the law to save nearly $2 Billion. Then you should also worry about H&R block and Turbo tax saving everyday US citizens tens of billions every year on tax detections.
        montoym
        • 2 Years Ago
        @All_mine
        Agreed! This is why I think it's so funny with all the talk about millionaires and billionaires not paying their full share. It's hypocritical when virtually none of us pays our full tax liability. If you want everyone to pay, then get rid of the current tax system and impose a flat tax with no deductions. But, just be prepared for you taxes to go up since all those deductions will be gone.
      Car Guy
      • 2 Years Ago
      I know this story is from Germany and doesn't affect the coffers here in the US, however, this goes to illustrate how most tax systems are far too complicated and contain too many loopholes. Here in the US, we need to shut down the loopholes and go to a simplified system where it doesn't require a 72,000 page document to fully explain.
        Pdexter
        • 2 Years Ago
        @Car Guy
        I wish that day comes, but i doubt it. Here in Finland, USA, Norway etc the tax system is a result of political compromises and backdoor deals of tens, hundreds of years. Such a radical change would always mean there's big losers and big winners. Not going to happen.
      Rob J
      • 2 Years Ago
      So are we supposed to be proud of VW/Porsche for avoiding taxes?
        Eidolon
        • 2 Years Ago
        @Rob J
        Personally, I am. More money for making cars!
          Carlos Cruz
          • 2 Years Ago
          @Eidolon
          Less money for healthcare, infrastructure, welfare, police and other programs in Germany! All hail the rich!
          montoym
          • 2 Years Ago
          @Eidolon
          @ Carlos: In case you didn't fully comprehend the story,VW would have backed out of the deal completely if they weren't able to skirt the tax. So, the tax wouldn't have been paid either way. There isn't any money lost for anythign you mentioned, it was never guaranteed to be paid. Such is what happens when you impose high tax rates, people will try to avoid them, either by clever accounting or simply not doing the action that triggers the tax.
          montoym
          • 2 Years Ago
          @Eidolon
          quote from Carlos Cruz: - "So in other words, a rich person wouldn't have ever bothered to do whatever action made them rich simply because they would have had to pay a little more in taxes or better yet, not have a loop hole to subsidize part of their operations?" - Glad to hear that you think a few Billion in taxes is just "a little more". Really helps to explain where you're coming from here. You are simplifying what I said and applying it to everything, but essentially the answer is yes. Taxes are a cost that is (or at least should be) considered when one decides to make a financial decision. If the tax liability of that decision is what makes the individual or company choose not to go through with the action, then don't you think that might suggest that the tax rate is too high? As far as your other questions, here are my answers: Oil Companies - No they would not stop drilling in the US if we stop subsidizing them. But, you will probably see prices go up somewhere else int he process in order to offset the money lost with the subsidy going away. Don't forget that corporations don't pay taxes, people pay taxes. A corporation only has money because it has customers and those customers pay the corporation for a good or service. The corporation pays for its tax liability from that money and if they see a decrease in revenue somewhere, they will look to replace it somewhere else. Zuckerberg - Do you believe that Mark created Facebook with the intention that it would be a multi-billion dollar company, or even a company at all? Your question imposes a false dilemma, but I'll respond anyhow. Since Mark Zuckerberg did become a billionaire due to the success of Facebook, do you not believe that he has a team of tax specialists and accountants on staff to help to reduce his tax liability as much as possible? Do you think that Mark Zuckerberg pays the full amount of taxes that he is supposed to pay based on his income? Heck, we all do it to one extent or another, TurboTax and H&R Block and others advertise all the time about helping people to reduce their tax liability and get them the biggest refund possible. Aren't we all tax cheats then? Post WWII, pre-Reagan tax rates - No the rich didn't stop investing and the reason is simple, while the tax rates were as high as 94% (1944), no one ever paid those high tax rates. There were so many credits, write-offs and loopholes available that taxable income could be easily made to fall below the limits that imposed the highest tax rates. Don't confuse what you see on paper with what was really paid. Even now, few people pay the highest rates we have currently because of completely legal write-offs, credits, and loopholes.
          Carlos Cruz
          • 2 Years Ago
          @Eidolon
          @montoym "Such is what happens when you impose high tax rates, people will try to avoid them, either by clever accounting or simply not doing the action that triggers the tax." So in other words, a rich person wouldn't have ever bothered to do whatever action made them rich simply because they would have had to pay a little more in taxes or better yet, not have a loop hole to subsidize part of their operations? Would oil companies drill in the USA if we stop subsidizing them? Would Mark never created Facebook because he would eventually have to pay a gigantic tax bill? Did the rich in the post WWII - pre-Regan times stop investing because of high (-the right) tax rates?
      Nick
      • 2 Years Ago
      I can't imagine the Baden-W├╝rttemberg Finance Ministry is too pleased about this. 1.5 B in tax income could go a long way.
        wilkegm
        • 2 Years Ago
        @Nick
        somewhere inside the Stuttgarter Landtag, housekeeping is cleaning up what's left of a fine cup of coffee, whose life was cut short, when it was thrown across the room.
      ablogreadr
      • 2 Years Ago
      such negativity over a fine piece of financial shenanigans. this type of jiggery-pook is why germany holds all the cards in europe's finances :)
      Josh
      • 2 Years Ago
      Why is it considered good business acumen to be able to not be respectable business people? I mean, why even dilute the brand with hybrids then? CAFE standards? Pedestrian standards? Not like the customers care or want that anyway. Just don't understand the selective ness of big business today.
        creamwobbly
        • 2 Years Ago
        @Josh
        Standards aren't there for the customers. They're there for the vast majority of road users who aren't driving that vehicle.
      Shahul X
      • 2 Years Ago
      Use money to make a Porsche/Audi/Lamborghini/Bugatti constructors car for formula 1
      BMW ROCKS!
      • 2 Years Ago
      no matter how disgusting the germans look, the good law-biding fine folks of the wall street can do better :)
        mr.vw
        • 2 Years Ago
        @BMW ROCKS!
        Sooo true, - At least they aren't begging for a bailout because they can't run a company!
      Justin
      • 2 Years Ago
      Absolutely disgusting.
      Avinash Machado
      • 2 Years Ago
      It's the governments fault for not plugging in the loopholes.
        montoym
        • 2 Years Ago
        @Avinash Machado
        Or it was completely intentional. The story does claim after all that the state did give them legally binding notice that they would not be liable for the tax. Why would the state do that if the tax revenue is what they are after?
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