Can someone explain something to me? This reference to making money on a write-off thing is bugging me, in particular, the concept that it blocks any sale of the IP.
First, I'm assuming U.S. Corporate Tax Law.
In my understanding, typically, a company can only write off an asset for tax purposes when it is "disposed" of. This is something the company largely gets to determine as to when it happens, yes, but it does have to back that up if their friendly neighborhood IRS agents come knocking (been there, done that). So, shutting down the game and/or selling it both would/should count as disposal.
Let's say they have $100 million of accumulated R&D and other "goodwill" associated with CoH that they are looking to write off. (This is a number picked out of a hat, btw, and has no known relevance to whatever the actual figure might be. Please do not go around quoting "SOMEONE SAID CoH WAS WORTH $100 MILLION ON NCSOFT'S BOOKS". You will be (probably) VERY wrong.)
Let's also assume they have profits from another product in the U.S. market (cough GW2 cough) they are looking to write this loss off against in the current FY, and/or are looking to carry back the loss to previous years. Let's use a relatively conservative think tank's effective federal/state tax rate (CATO Institute, do your own googling) value of 37.2% as a basis, and bump it to 40% for good measure by assuming NCSoft is as incompetent at managing it's U.S. financials as it is as managing it's U.S. service offerings (and to make the math that much simpler). Note that this figure includes such elements as state income taxes, sales taxes, etc.
That would indicate a tax savings of $40 million on the $100 million write-off.
Typically, when you sell an asset, you still get to write off any difference between the sales price and the "value" of that IP on your books. So let's assume they instead sold the IP for $10 million.
They now have the $10 million from the sale, plus $36 million from the remaining $90 million ($100 million value-$10 million payment received) write-off. A total of $46 million.
Last time I checked, 46 was greater than 40.
What am I missing here? I admit this is a drastically simplified model, ignoring, for example, repatriation of assets to South Korea and the possible currency conversion and taxation effects of that, but I'm still having trouble coming up with any scenario where completely destroying an asset is worth more than selling it, even at fire sale prices. Are there special limits on R&D/goodwill write offs in a sale/transfer situation that I'm not aware of? If someone could just PM with an IRS regs section number to review in relation to this, I'd appreciate it.
