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Volkswagen Avoids $1.1 Billion In Taxes By Giving Away 1 Share In Porsche Deal

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Martin Winterkorn, CEO of Volkswagen, smiles at the press conference this week announcing VW is buying Porsche.
Martin Winterkorn, CEO of Volkswagen, smiles at the press conference this week announcing VW is buying Porsche.

Volkswagen is proving yet again that automakers are absolute geniuses at avoiding paying taxes.

The German automaker paid $5.58 billion to take over the percentage of Porsche AG that it didn't already own, Bloomberg reports. And it also gave Porsche one share of VW stock -- a move which let VW save $1.1 billion in taxes.

By forking over that one additional share, VW was able to categorize the deal as a restructuring instead of a takeover.

The move, which was approved by German tax authorities, let VW take over Porsche two years earlier than planned. The companies have been working on a deal since 2009, when Porsche tried to buy VW.

VW isn't the only automaker that's found creative ways to avoid taxes. General Motors hasn't paid U.S. income taxes since it emerged from bankruptcy in 2009, even though it is making money. That's because, when the company emerged from bankruptcy it made a deal that allowed it to keep $18 billion in losses on its books. So as far as the IRS is concerned, GM hasn't made enough money yet to offset its old losses.

Ford has also been employing this trick for some some time. The accounting rule is called a "loss carry-forward," and means corporations can use the fact that they lost money last year to not pay taxes this year, even if they made money this year.

Ford said that as of Dec. 31, 2010, it had $15.7 billion in loss carry-forward credits to use in the future.

Chrysler has a different setup: Since the company was organized as a limited liability partnership before it went into bankruptcy, its former owners get to keep the losses they incurred while owning the automaker. So private investment fund Cerberus Capital Management, which owned Chrysler before Italian automaker Fiat took over, is probably still benefitting from those tax losses today.

Meanwhile, Fiat paid $92 million in taxes in 2011 for its Chrysler operations, according to its 2011 annual report.

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