GENERAL Motors will not have to pay US federal taxes on up to $50bn (£31bn) of profits for as long as 20 years because of a tax exemption for companies bailed out by the government under the Troubled Asset Relief Programme (Tarp).
The government ruling, passed last year, means the losses racked up by GM before its government-funded bankruptcy can be used to offset its future tax liabilities, according to a report in the Wall Street Journal.
With the standard federal corporate tax rate at 35 per cent, that tax break could save GM $17.5bn.
The news comes as the Detroit carmaker sets out to repay around $7bn of the $58bn it owes the taxpayer, through a public share listing of between $9.5bn and $10.5bn, valuing the company at around £60bn – roughly equivalent to rival Ford.
The tax benefit comes from so-called tax-loss carry-forwards, which allow companies to use previous losses to shield profits for up to 20 years.
Previously, companies that have a significant change in ownership – as GM did when the government took a 61 per cent stake in the company – would be restricted from claiming the tax break.
But, according to reports, the government last year decided Tarp recipients would not be barred – because the tax boost makes bailed-out companies more attractive to investors. The rationale is that even though the government loses out on tax payments, there would be no taxes paid at all if the companies fail.
GM expects to sell 365m common shares at $26 to $29 each. GM also plans to sell $3bn of preferred shares that would convert to common shares under mandatory provisions.
GM, which emerged from bankruptcy in July 2009 with the US Treasury as its majority shareholder, is likely to sell a combined $1.5bn to $2bn stake to four or five sovereign wealth funds, sources said.
City A.M. Reporter