| 1. | a harbor considered safe for a ship, as in wartime or during a storm at sea. |
| 2. | any place or situation that offers refuge or protection. |
Safe Harbor
1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated.
2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. In effect, this gives the target company a "safe harbor."
3. An accounting method that avoids legal or tax regulations and allows for a simpler method (usually) of determining a tax consequence than those methods described by the precise language of the tax code.
Investopedia Commentary
1. In the first case, under SEC rules, safe-harbor provisions protect management from liability for making financial projections and forecasts made in good faith.
2. When trying to scare away sharks, it sometimes helps to stink up the water.
3. Here's an example of an accounting safe harbor: a firm is losing money and therefore cannot claim an investment credit, so it transfers this claim to a company that is profitable and can therefore claim the credit. Then the profitable company leases the asset back to the unprofitable company and passes on the tax savings.
Related Links
The Wacky World of M&As
The Basics of Mergers and Acquisitions
The Advantages Of Investing In Aggressive Companies
Earnings Guidance: The Good, The Bad And Good Riddance?
Advanced Financial Statement Analysis
See also: Hostile Takeover, Liability, SEC, Shark Repellent, Target Firm, Tax Credit
safe harbor
A regulation that protects individuals or corporations from the legal consequences of certain actions they undertake. For example, firms filing forecasts with the SEC have a safe harbor from individuals or businesses that use the forecasts and are subsequently damaged (that is, they lose money), as long as the forecasts were prepared in good faith.
A tactic in which the target of an unfriendly takeover makes itself less attractive by taking a specific action.