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24.11.2015 02:49 Age: 2 days

IRS' new regulations on corporate inversions

The US Treasury Department has issued further notices aimed at discouraging "corporate inversions".

On November 19, the Internal Revenue Service (IRS) and the US Department of the Treasury issued Notice 2015-79 which announced the US government's intention to issue regulations that would make it more difficult to avoid existing inversion rules and to reduce the tax benefits thereof.

According to the Department of the Treasury US companies are "taking advantage of an environment that allows them to move their tax residence overseas to avoid paying taxes, without making significant changes in the nature of their overall operations".

For deals closed from the date of the announcement (November 19) the following will make it more difficult for US companies to undertake a corporate inversion:

  1. limiting the ability of US companies to combine with foreign entities using a new foreign parent located in a "third country";
  2. limiting the ability of US companies to inflate the new foreign parent corporation's size and therefore avoid the 80 percent ownership rule; and
  3. requiring the new foreign parent to be a tax resident of the country where the foreign parent is created or organised - this applies in order to satisfy the current rule that at least 25 percent of the new entity's business activity is in the home country of the new foreign parent.

In order to reduce the tax benefit of inversions completed on or after September 22, 2014, the notice also limits "the ability of an inverted company to transfer its foreign operations to the new foreign parent after an inversion transaction without paying current US tax".


IRS' new regulations on corporate inversions