The Vancouver software company has so much cash and equivalents – US$87.3-million on March 31, or 90 per cent of its assets – that it is at risk of being branded as a passive foreign investment by the U.S. Internal Revenue Service . That could be a headache for U.S. shareholders, who own 20 per cent of its 24.1 million subordinate voting shares.
While the bid is well below the $13-a-share April, 2021, initial public offering price, “I think it’s good for a CEO to pay off the mortgage and just be 100 per cent worry-free to worry about the growth of the business,” Greg Smith said. From Thinkific’s perspective, “the stock is a good value buy so it’s a good use of funds,” he said.
Gains from PFICs are taxed as ordinary income, at a higher rate than capital gains, and holding them brings administrative headaches, said Ari Feder, a tax partner with law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC in New York. Investors must fill out lengthy forms and can apply to have the investment taxed at a lower rate by filling out even more paperwork,
“We have significant cash on the books and wanted to reduce the exposure investors have in Thinkific to being more of a cash investment,” Mr. Smith said. “By us using cash for other purposes, it helps prevent becoming a PFIC.”