Bear Stearns may owe Revenue

A NON-TRADING Irish subsidiary of Bear Stearns, the New York bank that collapsed in 2008 and was acquired by JP Morgan, could have to pay the Revenue Commissioners $151.5 million in capital gains tax relating to a transaction in 2009 involving a related entity based in the Cayman Islands.

This is revealed in the latest accounts for Bear Stearns Ireland Ltd. As part of a reorganisation of group companies, the Irish entity became a majority shareholder in Bear Stearns Global Asset Holdings Ltd (BSGAH), which is resident in the Cayman Islands.

In 2009, BSGAH made a distribution out of its share premium account to its shareholders.

A note to the financial statements of Bear Stearns Ireland Ltd reveals this payment could be subject to capital gains tax here.

Bear Stearns Ireland Ltd has submitted an “expression of doubt” to the Revenue on the matter, a move that protects it against having to pay any fines or penalties, the accounts state.

“To date, no response has been received.”

The accounts show the Irish company sold a large shareholding in a related entity in Dublin to a sister company overseas for $756.5 million in cash last November. Bear Stearns Ireland Ltd sold its 77.78 per cent stake in JP Morgan Dublin Financial Holdings Ltd to a Luxembourg-based sister company called Bear Stearns International Funding.

“This sale enabled a series of capital restructuring transactions within the JP Morgan group to take place in an efficient manner,” the accounts said. The directors’ report said the company is “considering the best use for these funds and its future activities”.

In addition, the company liquidated its other investment – a 77.77 per cent stake in Bear Stearns Global Asset Holdings – in November. The proceeds of $171.2 million were used to repay “existing intercompany borrowings”, according to the accounts.

Bear Stearns Ireland Ltd acts as a holding company and did not trade in 2010. But it earned interest income of $541,000 and booked an impairment charge of $685,000 relating to one of its investments. It paid tax of $130,000 to close the year with a loss of $274,000. The company had accumulated losses of $186.1 million and shareholders’ funds of $757.1 million at the end of 2010.