Twenty-First Century Fox 2014 Annual Report Download - page 37

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Risks Related to the Separation
If the Separation, Together with Certain Related Transactions, Were Ultimately Determined to be Taxable
Transactions for U.S. Federal Income Tax Purposes, then We Could Be Subject to Significant Tax Liability.
The Company received (i) a private letter ruling from the IRS substantially to the effect that, among other
things, the distribution of Class A Common Stock and Class B Common Stock of News Corp qualifies as tax-free
under Sections 368 and 355 of the Internal Revenue Code of 1986, as amended (the “Code”) except for cash
received in lieu of fractional shares of News Corp stock and (ii) an opinion from the law firm of Hogan Lovells US
LLP confirming the tax-free status of the distribution for U.S. federal income tax purposes, including confirming the
satisfaction of the requirements under Section 368 and 355 of the Code not specifically addressed in the IRS private
letter ruling. The opinion of Hogan Lovells US LLP will not be binding on the IRS or the courts, and there is no
assurance that the IRS or a court will not take a contrary position.
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:
xapproving or allowing any transaction that results in a change in ownership of more than a specified
percentage of our common stock,
xa merger,
xa redemption of equity securities exceeding 20% of its outstanding capital stock,
xa sale or other disposition of certain businesses or a specified percentage of our assets, or