GM Granted Tax Burden Relief In Latest Legislative Draft

by Mike Godfrey, Tax-News.com, Washington

13 February 2009

General Motors is to be granted relief from an exceptional tax bill which would have arisen as a result of necessary restructuring under auto industry bail-out measures. The exemption has been added to the forthcoming US stimulus package.

Michigan Senator, Debbie Stabenow, announced to reporters on February 11, that the legislation had been appropriately altered to allow General Motors to avoid the multi-billion dollar tax bill which would have arisen from GM’s restructuring plan.

GM quietly lobbied Congress arguing that the restructuring, which will offer bondholders' equity in exchange for existing debt and partly pay for the retiree health care fund with stocks, would have cost the company between USD7bn-USD10bn in income tax, effectively nullifying the US government’s USD13.4bn loan package.

The change to legislation allows companies supported by the Troubled Asset Relief Program, which GM falls under, to offset their income tax liability against prior losses in a change of ownership situation.

Without the recent amendment, which is still pending approval from both houses of Congress, GM would not have been able to carry out vital restructuring, as it would have fallen below its minimum operating capital requirement of USD11bn-USD14bn.

As part of the conditions attached to the USD13.4bn loan package, of which GM has already received USD9.4bn, it must produce a viability plan to the US Treasury Department by February 17 and show evidence of significant restructuring by March 31.

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