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How effective will Treasury’s actions be to rein in corporate inversions

25 Sep 2014

The US Treasury has made no secret about their intended actions to curb the recent wave of corporate inversions. Taxand USA considers the question that many are asking - what does this mean for US corporations looking to invert?

The Treasure Secretary signaled in various conferences over the past few weeks that Treasury action to curb corporate inversions was imminent, so it was no surprise to see Notice 2014-52 released on Monday 22 September. Although the Regulations for Notice 2014-52 have not yet been issued (and many suspect the Regulations will not be issued for several weeks or months) when issued, the Regulations will apply to all corporate inversions completed on or after 22 September 2014.  

Notice 2014-52 addresses two categories of perceived abuses surrounding corporate inversions. First,Treasury intends to make it more difficult for US corporations to invert by strengthening the requirement that the former owners of the US corporation own less than 80% of the new combined entity. The second category of perceived abuses involves certain post-inversion intercompany lending transactions and restructuring transactions designed to access the earnings of controlled foreign corporations owned by the US inverted corporation.  

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Taxand's Take

There is no doubt that the Notice will cause some transactions to be called off. That said, while the new rules seem rather daunting, particularly given that some of the prohibitions on post-inversion transactions apply for 10 year period post-inversion, there are potential planning opportunities to mitigate the impact of such rules. While some transactions may be aborted, others can be restructured or modified to work-around the harsher aspects of the Notice.  

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