New IRS Regulations For Corporate Inversions

Companies have long used corporate inversions to reduce their U.S. taxes. Prior to 2004, the IRS was concerned that U.S. corporations that carried out inversion transactions could remove non-U.S. operations from the U.S. tax system and strip earnings by becoming subsidiaries of foreign companies (typically organized in low-tax jurisdictions). In 2004, the IRS implemented legislation, known as the "anti-inversion rules," to prevent these perceived abuses. With more regulations having come into effect on November 19, 2015, there are new areas to be mindful of when planning for corporate restructuring.

Inversion – general provisions

An inversion transaction consists of a plan or a series of related transactions resulting in a foreign corporation becoming a "surrogate foreign corporation" (and thus becoming subject to certain U.S. tax implications). An inversion has occurred if the transaction meets three criteria: