Alibaba: The New Chinese Internet Marketing Phenomenon

Alibaba has burst into the world’s consciousness in a big way. The Chinese Internet company is a bit like Amazon and a bit like eBay, but more profitable than either one. Tax attorney Rob Wood discusses this interesting new business in this report and in his Forbes article “Alibaba Is The New Amazon In Taxes (Just Ask Yahoo).”

Rob Wood

Rob Wood

Wood explains that Alibaba is like Amazon in some ways, especially in the early days of Amazon before it started collecting and remitting sales taxes, as it now does for 23 states. Alibaba is different from Amazon in several other ways, among them that it has no warehouses. It is an entity that serves to connect buyers and sellers. It is a Cayman Islands company, but its primary place of business is China.

Alibaba has been incredibly profitable. One beneficiary of that profit-making capacity has been Yahoo, which invested $1 billion in Alibaba in 2005. It presently appears that Yahoo’s profit is somewhere between $8.3 billion and $9 billion.

Wood notes that this profit situation leads to some interesting speculation about what Yahoo will do with the money and how it might try to shield the money from taxes. If it does nothing to shield the profit, it would presumably pay taxes at the U.S. rate of 35%. Wood points out that many corporations have worked on shielding profits by strategies like the “double Irish,” offshore income, licensing, patent boxes, and other strategies.

Alibaba’s forte is putting people together, and they make a great profit doing so. Also, Alibaba is putting the world in touch with Chinese buyers and sellers. Wood suggests that the Chinese connection is one of the things that makes its stock so attractive.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

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