Inversion Control: U.S. Treasury Announces New Rules Affecting Cross-Border Transactions

In September 2014 we reported on the practice of "tax inversions", cross-border transactions in which the resulting entity may be headquartered in another country for tax purposes. A number of recent transactions between the U.S. and Canada have been seen as inversions by some. On April 4, the U.S. Department of the Treasury and the Internal Revenue Service announced new temporary and proposed regulations that may significantly impact cross-border transactions involving U.S. companies.

As a result of previous action by the Treasury, companies in a cross-border deal can avoid triggering the tax code's inversion rules when the U.S. company's value is less than 80% of the combined group value. In calculating the foreign parent's value, the new temporary regulations will disregard stock of the foreign parent attributable to prior acquisitions of U.S. companies within three years. This means that if the foreign parent has recently engaged in other cross-border