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New Inversion Regulations — Raising the Ante for Substantial Business Activity

24 Sep 2009

The latest chapter in the inversion story unfolded on June 6 with the Treasury Department's issuance of new temporary and proposed regulations that further raise the ante for US-based multinationals considering entering into an inversion transaction. While the new regulations address several aspects of the inversion rules, Alvarez & Marsal Taxand, our US member, discuss what is arguably the most significant element of the new regulations: the change to the application of the substantial business activities test.{C}


Taxand's Take

US companies considering an inversion transaction will have to carefully analyse the facts in their particular circumstances and weigh them against the risk (and associated cost) of running afoul of the inversion rules. This will be an even more difficult task with the current lack of a safe harbour for the SBA test, which in the past at least provided a reference point for what could be considered "substantial business activities". The question remains whether the increased uncertainty surrounding "substantial business activities" will effectively quell future inversion activity, except perhaps in cases where the inverting company historically had considerable business operations in the host jurisdiction.

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David Zaiken
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Taxand's Take Author