International Multifoods Corporation and Affiliated Companies - Page 16

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               In a memorandum dated May 24, 1988, from Michael S. Munro to           
          Paul Quinn, Mr. Munro recommended that the purchase agreement               
          should not contain an allocation of the sale price.12  In                   
          response to this suggestion, petitioner's legal department                  
          removed the allocation from the subsequent draft dated May 25,              
          1988.  However, in a memorandum dated May 27, 1988, Mr. Schaefer            
          expressed concern regarding the absence of such an allocation:              

               The lack of any purchase price allocation in the                       
               Agreement is not particularly helpful from a U.S. tax                  
               viewpoint.  However, the fact that the purchaser is a                  
               Japanese entity and the current lack of distinction in                 
               the amount of tax on capital gains and ordinary income                 
               minimizes this concern.                                                
               It could be advantageous to have a portion of the                      
               purchase price allocated to "goodwill" in the four Far                 
               East countries where Mister Donut already has                          
               My main concern, though, is with uncertain tax                         
               consequences surrounding the transfer of trademarks in                 
               the Peoples Republic of China, Taiwan, Indonesia,                      
               Malaysia, Singapore, and Hong Kong.  It is possible                    
               that the trademark transfers could generate a tax in                   
               these countries.  Therefore, if amounts are to be                      
               allocated to the trademarks associated with these                      
               countries, the purchase price allocated to them should                 
               be as little as possible.  If this is not practical as                 
               negotiations continue, I would appreciate it if you                    
               could keep me advised so that I can get some outside                   
               professional help with respect to the tax consequences                 
               of the trademark sale in these countries.                              

               12Mr. Munro was an assistant to Mr. Quinn, petitioner's                
          group vice president for international affairs.                             

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