Ruling OKs Tax Advantaged Subs

Boston (Nov. 5, 2002) -- In a major ruling that favors companies seeking tax benefits through subsidiary transactions, the Massachusetts Supreme Court held that Sherwin-Williams Company was within its legal right to seek tax advantages through transactions with its subsidiaries and affiliates.

The decision overturned an earlier Appellate Tax Board ruling, which found that the transfer and licensing-back transactions between a parent company and its subsidiaries were without economic substance and therefore "a sham in substance."

Now companies will have the opportunity to have inter-company payments respected by Massachusetts by demonstrating that the affiliated corporations are real, regardless of whether the sole purpose motivating the formation of such affiliates was the avoidance of tax.

"This decision sets precedent with national implications not only because of the number of companies around the country that do business in Massachusetts, but also because there are numerous similar cases in other states including Maryland, Wisconsin, New York, Louisiana, Missouri, New Mexico, North Carolina, and Tennessee," said Craig Fields, a member of the group at the law firm of Morrison & Foerster that represented Sherwin-Williams.

--Electronic Accountant Newswire staff