Taxes and Business Strategy

Transcription

1 Taxes and Business Strategy Spring Term, 2017 Professor: Phone: Office: Leslie Robinson (office)/ (mobile) Tuck 303 (office hours by appointment) Course Time and Location: Mon/Tues 3:00-4:30 Stoneman Classroom (Please see Canvas for exceptions) Course Materials: 1. Textbook (REQUIRED): Scholes, Wolfson, Erickson, Hanlon, Maydew and Shevlin. Taxes and Business Strategy: A Planning Approach, Prentice Hall, 5th edition. 2. Canvas: Includes general course information, important announcements, lecture slides, handouts, cases, solutions and optional reading. Course Goals and Objectives: Traditional finance and business strategy courses do not consider the role of taxes in decisionmaking. Similarly, traditional tax courses often ignore the richness of the decision context in which taxes operate. The course objective is to develop a framework for understanding how taxes affect business decisions. The three key themes of the framework are: All Parties: Effective tax planning requires the planner to consider the tax implications of a proposed transaction for all parties to the transaction. All Taxes: Effective tax planning requires the planner, in making investment and financing decisions, to consider not only explicit taxes (tax dollars paid directly to taxing authorities) but also implicit taxes (taxes paid indirectly as lower before-tax rates of return on tax-favored investments). All Costs: Effective tax planning requires the planner to recognize that taxes represent only one among many business costs. In the planning process, all potential non-tax costs must be considered.

2 Most of the materials illustrate U.S. tax law, but the underlying tax strategies and principles have applicability in many jurisdictions. The three course themes are applied to numerous decision contexts to offer you a basic understanding of how taxation affects traditional business decisions: e.g., forming a business and raising capital, operating the firm, compensating executives, distributing cash to shareholders, expanding through acquisition, divesting lines of business, and expanding internationally. The goal is to provide you with a structured approach to thinking about taxes that will be valuable even as laws and governments change. A recurring theme will be linking the tax strategies that we learn with concepts from corporate finance, financial accounting, business law, and economics. We will also make use of real transactions to illustrate the impact of tax structure on cash flow, and, in some cases, accounting earnings. Taxes have a direct impact on cash flow and can divert 40% of the firm s pretax cash flow to the government. Understanding taxation and how firms plan accordingly is important for just about any career path you choose, whether you will be an investment banker, venture capitalist, consultant, money manager, CFO, treasurer, controller, taking over a family-owned business, or as an entrepreneur setting up a new business. Taxes are everywhere and it pays to have some understanding of them. People who understand the tax consequences and trade-offs of decisions have a distinct advantage in the marketplace. Grading: The points are allocated as follows: Quizzes: Quizzes (x4) 40% Case Synopsis (x9) 40% Case Write-Up & Presentation (x1) 20% Total 100% I will distribute 4 take-home quizzes (open book and open note) throughout the term that you will work through individually over 3 consecutive hours. The quizzes will be distributed via Canvas. Please print out a copy and hand in your answers outside Tuck 303 by the deadline. The purpose of these quizzes is to solidify your understanding of the course material at a basic level. The Suggested Problems in the detailed schedule will help you grasp important concepts from the required reading and prepare you for the quizzes. Assignments & Preparation (in general, more details below): We will cover 13 cases throughout the term. I believe that clear, concise, written communication of a complex topic like tax is vital and I will ask you to do some writing. First, for 9 cases of your choosing, you will individually prepare a 1-page case synopsis. Second, for 1 case assigned by me, you will prepare as a group a 5-page case write-up and a min presentation to the class. I will try to accommodate case preferences when assigning groups should you have a strong interest in a particular topic. The purpose of these cases is to bring the course framework to life by application

3 to a variety of settings of interest to MBA students. Case Write-Up & Presentation (must complete 1 with assigned group): For each case, I will assign groups of approximately 2 students the task of preparing a case write-up and presentation of the case issues to the class. This will give each student the chance to take 1 deep dive into a case. The write-up is due by 8pm the day after the case is covered in class. The presentation slides are due 30 minutes prior to class. When preparing your presentation, pretend that you are explaining the issues to someone that knows little about the case background. To guide each group in thinking about some of the key issues in each case, I will post to Canvas a set of detailed discussion questions for each case. These questions are not meant to be a complete list of the key issues. You should include anything you feel is important. Keep your write-up and presentation focused on the course themes all parties, all taxes, all costs. How does this framework apply to your case? Why is important? Who are the parties involved and what are their objectives? What are the tax issues? What are the non-tax issues? What are the decisions being made and were those the decisions that you would have made if you were in that place at that time? Your grade will depend on the soundness of analysis both quantitative and qualitative - and the clarity of exposition both written and oral. Case Synopsis (must complete 9 individually you decide which 9): For each case, the students that are not preparing a presentation in an assigned group will be expected to individually prepare a 1-page synopsis. Please follow the 1-page guideline strictly. Note that each student need only complete a synopsis for 9 cases, and may ignore 3 cases. This allows for some flexibility during the class for busy schedules and/or lack of enthusiasm about a topic. Of course, all students are encouraged to prepare to discuss all cases covered in the course. The 1-page synopsis is due by 8pm the day after the case is covered in class. You should think of your classmates presentation as a chance for you to probe them for answers to questions you have about the case in to complete your synopsis. The objective of your synopsis is to link the case back to the three key themes of the course all parties, all taxes, all costs. Describe as clearly as you can how this framework is important in the context of the case and how it is used to evaluate the decisions made in the case. From among all of the submissions, I will post to Canvas an exemplary synopsis for your reference. The group preparing a full case-write up and presentation will assign grades for all 1-page synopses on a three point scale. Codes of Conduct: See: You are responsible for knowing, understanding and adhering to these standards.

4 Class Date Topic March 21 Wednesday March 22 March 27 March 28 April 3 Fundamentals & Terminology Personal Savings & Investment Compensation I: Salary, Deferred & Pension Compensation II: Equity-Based High Wealth Detailed Schedule Class Preparation Read: Chapters 1/2 (pgs 1-13; 16-31) Read: Chapter 3 (pgs 36-53) Read: Chapter 8/9 (pgs , ) Case 1: UVA-C-2187 (Stanford) Read: Chapter 8 (pgs ) Case 2: UVA-C-2186 (Microsoft) Read: Chapter 18 (pgs ) Case 3: UVA-C-2261 (Estee Lauder) Suggested Problems dq-1.7,1.8,1.9 e-1.1,1.3 dq-2.2,2.3,2.6,2.9,2.12 e-2.1 dq-3.3,3.6,3.9 e-3.1,3.2,3.4,3.9,3.10 tpp-3.1,3.3 e-8.1,8.2,8.3 tpp-8.1 dq-9.2,9.3,9.4,9.5 e-9.1 tpp-9.5(parts a-c) dq-8.9,8.10,8.11 e-8.8(a,b,d),8.9,8.10(a-d, pre-1992 t c =34%) tpp-8.3 dq-18.1,18.2,18.3,18.6,18.8 tpp-18.2,18.3 Take-Home QUIZ #1 covering Classes 1-5 (due Friday, April 7 by noon) 6 April 4 Entity Choice Read: Chapter 4 (pgs 58-85) Case 4: UVA-C-2310 (H&S) dq-4.1,4.2,4.8,4.15 e-3.3(drd),4.1,4.2,4.4,4.7 tpp April 10 Corporate Tax I: Background Read: Chapter 5/12 (pgs , ) Case 5: HBS (Rexford) dq-12.1,12.2,12.4,12.5,12.6,12.7 e-12.1,12.2, April 11 Corporate Tax II: Financing Case 6: CTS-5-2 (Enron) 9 April 11 (4:45 pm) Corporate Tax III: Distributions Read: Chapter 12 (pgs ) Case 7: CTS-5-1 (Seagram/Du Pont) e-2.6 dq-12.9 e-12.3 Take-Home QUIZ #2 covering Classes 6-9 (due Friday, April 14 by noon) dq = discussion question, e = exercise, tpp = tax planning problem

5 Detailed Schedule (cont.) 10 April 17 M&A I: Taxable Chapter 13/14 (pgs , ) dq-13.4,13.5,13.11 dq-14.2,14.3,14.6,14.7 tpp April 17 (4:45-6pm) M&A II: Taxable Read: Chapter 15 (pgs ) dq-15.1,15.2 tpp-15.1, April 18 M&A III: Tax-Free Read: Chapter 16 (pgs ) Case 8: HBS (Citigroup/Wachovia/Wells Fargo) dq-16.2,16.5,16.9,16.10 tpp-16.4, April 24 M&A IV: Divestitures Read: Chapter 17 (pgs ) Case 9: Tuck-TBS-1 (Yahoo/Alibaba) q-17.3,17.4, tpp-17.3,17.5 Take-Home QUIZ #3 covering Classes (due Friday, April 28 by noon) 14 April 25 Taxes in Financial Statements Read: Chapters 6/7 (pgs , ) Case 10: HBS (Citigroup) dq-6.11,6.12,6.15 dq-7.2,7.4 e-7.1,7.2,7.3 tpp May 8 International I: Background Read: Chapter 10/11 (pgs , ) dq-10.1,10.8,10.9 e-10.1 tpp-10.1(a-c),10.2 dq-11.1 e-11.1, May 9 International II: Transfer Pricing & Offshore Cash Case 11: HBS (Cisco) 17 May 15 III: Inversions & Tax Reform Case 12: Tuck-TBS-2 (Pfizer/Allergan) 18 Take-Home QUIZ #4 covering Classes (due Friday, May 19 by noon) May 16 Tax Shaming Read: Stanford-A226 Case 13: Stanford-A227 (Etsy)