The IRS recently released final Treasury regulations
that are critical to determining when the U.S. inversion rules
apply to a particular transaction. If applicable, the U.S. tax
rules regarding inversions can have an extremely adverse impact
on Canadian corporations that acquire or reorganize U.S.
entities. Since the inversion rules can apply in unexpected
ways, Canadian companies considering a cross-border
acquisition or restructuring should work closely with their
U.S. tax advisors to avoid unexpected problems with these
rules.
Background
Congress enacted the inversion rules in 2004. These rules
were targeted at U.S. corporations that were effectively
relocating to lower tax jurisdictions to avoid or reduce the
U.S. tax burden of a corporate group. In a typical inversion
transaction, the shareholders of the U.S. corporation would
contribute their shares in the U.S. corporation to a new
