Premier Inc Tax Receivable Agreement: Understanding the Basics
Premier Inc, a healthcare improvement company, entered into a Tax Receivable Agreement (TRA) following its initial public offering (IPO) in September 2013. The TRA is an agreement between Premier Inc and its shareholders, and it essentially allows Premier to receive tax benefits related to certain pre-IPO transactions.
In simple terms, the TRA enables Premier to receive a portion of the tax benefits generated by the company`s pre-IPO assets. These tax benefits primarily come from the increase in the company`s tax basis due to the IPO.
But what exactly is tax basis? Tax basis refers to the original investment in an asset for tax purposes. In other words, it`s the value of an asset for tax purposes, and it`s used to calculate gains and losses when the asset is sold or disposed of.
In the case of Premier, the TRA allows the company to receive tax benefits related to the increase in its tax basis due to the IPO. This increase in the tax basis essentially means that when Premier sells or disposes of certain pre-IPO assets, it will have a lower taxable gain because of the increased tax basis.
This is where the TRA comes in. The TRA essentially allows Premier to monetize these tax benefits by receiving payments from its shareholders. These payments are based on a formula outlined in the TRA and are designed to compensate Premier for the tax benefits it would have otherwise received had it not gone public.
The payments made to Premier under the TRA are based on the amount of taxable gain realized by its shareholders when they sell or dispose of their shares. Essentially, the payments are a percentage of the tax benefits that Premier receives as a result of the increase in its tax basis.
It`s important to note that the TRA is a contractual agreement between Premier and its shareholders, and it`s not a tax law or regulation. The TRA is designed to provide Premier with a way to monetize its tax benefits and provide its shareholders with a way to minimize their taxable gain.
In conclusion, the Premier Inc Tax Receivable Agreement is an important agreement that allows Premier to monetize the tax benefits generated by its pre-IPO assets. The TRA is a contractual agreement between Premier and its shareholders and enables the company to receive payments based on the increase in its tax basis. Understanding the TRA is important for shareholders and investors alike as it can have an impact on the company`s financial performance.
