Supervise and Wager Company produces consumer goods that are distributed and sold primarily in North America, Europe, and Asia. The business includes a U.S. parent company, S&W, Inc., and separate operating subsidiaries in each region in which the company conducts significant business.
The company's board is considering a structural reorganization to reduce the global tax costs. Options include reorganizing the parent company in either Bermuda or Ireland. Under any option, current shareholders will contribute their stock in the U.S. parent company in return for an equivalent amount of stock in the new parent. The U.S. parent will be liquidated, and the new corporation then will be the sole shareholder of the operating subsidiaries.
a. What might S&W be trying to achieve with the proposed organizational restructuring?
b. What insight can you provide regarding the immediate and longer-term tax consequences of the reorganization?