(September 23, 2014)

On September 22, 2014 the U.S. Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) issued Notice 2014-52, Rules Regarding Inversions and Related Transactions. The notice announces that the Treasury Department and the IRS intend to issue regulations under sections 304(b)(5)(B), 367, 956(e), 7701(l), and 7874 of the Internal Revenue Code.

The notice consists out of 5 sections: 

  • SECTION 1. OVERVIEW;
  • SECTION 2.  REGULATIONS TO ADDRESS INVERSION TRANSACTIONS;
  • SECTION 3.  REGULATIONS TO ADDRESS POST-INVERSION TAX AVOIDANCE TRANSACTIONS;
  • SECTION 4.  EFFECTIVE DATES
  • SECTION 5.  REQUEST FOR COMMENTS AND CONTACT INFORMATION.

Section 1 provides background information and an introduction.

Section 2 of the notice describes regulations that the Treasury Department and the IRS intend to issue that will address transactions that are structured to avoid the purposes of sections 7874 and 367 by (i) for purposes of section 7874, disregarding certain stock of a foreign acquiring corporation that holds a significant amount of passive assets; (ii) for purposes of sections 7874 and 367, disregarding certain non-ordinary course distributions; and (iii) for purposes of section 7874, providing guidance on the treatment of certain transfers of stock of a foreign acquiring corporation (through a spin-off or otherwise) that occur after an acquisition.

Section 3 of the notice describes regulations that the Treasury Department and the IRS intend to issue that will address certain tax avoidance by (i) preventing the avoidance of section 956 through post-inversion acquisitions by controlled foreign corporations (CFCs) of obligations of (or equity investments in) the new foreign parent corporation or certain foreign affiliates; (ii) preventing the avoidance of U.S. tax on pre-inversion earnings and profits of CFCs through post-inversion transactions that otherwise would terminate the CFC status of foreign subsidiaries and/or substantially dilute the U.S. shareholders’ interest in those earnings and profits; and (iii) limiting the ability to remove untaxed foreign earnings and profits of CFCs through related party stock sales subject to section 304.

Section 4 of the notice provides the effective dates of the regulations described in this notice. 

Section 5 of the notice requests comments and provides contact information for purposes of submitting comments.

Click here to be forwarded to Notice 2014-52, as published on the website of the IRS, which will open in a new window.

Click here to be forwarded to a press release titled: “Treasury Announces First Steps to Reduce Tax Benefits of Corporate Inversions” as issued by the U.S. Department of the Treasury in this respect.

 

 

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