Twenty-First Century Fox 2013 Annual Report Download - page 38

The private letter ruling and the opinion rely on certain facts and assumptions, and certain representations
from the Company and News Corp regarding the past and future conduct of our respective businesses and other
matters. Notwithstanding the receipt of the private letter ruling and the opinion, the IRS could determine on audit
that the distribution or the internal transactions should be treated as taxable transactions if it determines that any
of these facts, assumptions, representations or undertakings is not correct or has been violated, or that the
distribution or the internal transactions should be taxable for other reasons, including as a result of a significant
change in stock or asset ownership after the distribution. If the distribution ultimately is determined to be taxable,
the distribution could be treated as a taxable dividend or capital gain for U.S. federal income tax purposes, and
U.S. stockholders and certain non-U.S. stockholders could incur significant U.S. federal income tax liabilities. In
addition, if the internal reorganization and/or the distribution is ultimately determined to be taxable, the
Company would recognize gains on the internal reorganization and/or recognize gain in an amount equal to the
excess of the fair market value of shares of the News Corp common stock distributed to our stockholders on the
distribution date over our tax basis in such shares of our common stock.
We Could Be Liable for Income Taxes Owed by News Corp.
Each member of our consolidated group, which until June 28, 2013 included News Corp and each of our
other subsidiaries, is jointly and severally liable for the U.S. federal income tax liability of each other member of
the consolidated group. Consequently, we could be liable in the event any such liability is incurred, and not
discharged, by any other member of our consolidated group. Under the terms of the tax sharing and
indemnification agreement that we entered into in connection with the Separation, we will be required to
indemnify News Corp for any such liability. Disputes or assessments could arise during future audits by the IRS
in amounts that we cannot quantify.
We Might Not Be Able to Engage in Desirable Strategic Transactions and Equity Issuances Because of Certain
Restrictions Relating to Requirements for Tax-Free Distributions for U.S. Federal Income Tax Purposes.
Our ability to engage in significant strategic transactions and equity issuances may be limited or restricted in
order to preserve, for U.S. federal income tax purposes, the tax-free nature of the distribution. Even if the
distribution otherwise qualifies for tax-free treatment under Section 355 of the Code, it may result in corporate
level taxable gain to us under Section 355(e) of the Code if 50% or more, by vote or value, of shares of our stock
or News Corp’s stock are acquired or issued as part of a plan or series of related transactions that includes the
distribution.
To preserve the tax-free treatment of the distribution and the internal transactions in connection with the
distribution for U.S. federal income tax purposes, under the tax sharing and indemnification agreement that we
entered into with News Corp, we will be prohibited from taking or failing to take certain actions that may prevent
the distribution and related transactions from being tax-free for U.S. federal income tax purposes. Further, for the
two-year period following the distribution, we may be prohibited from:
• approving or allowing any transaction that results in a change in ownership of more than a specified
percentage of our common stock,
• a merger,
• a redemption of equity securities exceeding 20% of its outstanding capital stock,
• a sale or other disposition of certain businesses or a specified percentage of our assets, or
• an acquisition of a business or assets with equity securities to the extent one or more persons would
acquire in excess of a specified percentage of our common stock
These restrictions may limit our ability to pursue strategic transactions or engage in new business or other
transactions that may maximize the value of our business.
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