The U.S. Treasury Department and IRS today released for publication in the Federal Register final and temporary regulations (T.D. 9834) concerning transactions that “are structured to avoid the purposes of sections 7874 and 367” and certain post-inversion tax avoidance transactions. The term “inversions” refers to a domestic corporation’s adoption of a foreign-parented corporate structure and may concern certain post-inversion restructuring transactions. The regulations affect those domestic corporations and domestic partnerships with assets directly or indirectly acquired by a foreign corporation and certain persons related to those domestic corporations and domestic partnerships.
With today’s release [PDF 376 KB], regulations that were proposed in April 2016 are finalized, and related temporary regulations also published in April 2016 are removed and replaced.
A statement in the preamble to today’s final regulations (under the topic “Effects on Compliance Costs”) provides:
The final regulations narrow the scope of regulated activities and reduce compliance costs relative to the 2016 regulations. The regulations also aim to reduce required paperwork burden, complexity, and ambiguities that may unintentionally discourage legitimate merger activity. In particular, changes that reduce complexity and ambiguity were made to the passive assets rule, the NOCD [non-ordinary course distributions] rule, and the rules coordinating the application of the stock exclusion rules with the expanded affiliated group (EAG) rules. Clarifying changes were made to the passive assets rule, the serial acquisition rule, the third country rule, and the substantial business activities rule.
The purpose of this report is to provide text of today’s 146-page regulations. Initial impressions of these regulations will be provided in a follow-up edition of TaxNewsFlash.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.