M&A Update: Senator Levin Introduces Anti-Inversion Act

On May 20, 2014, Sen. Carl Levin (D-MI) introduced the Stop Corporate Inversions Act of 2014 (the “Levin Bill”), which proposes significantly more stringent limits on the ability of U.S. companies to relocate outside the U.S.  The Levin Bill, if enacted, would apply to transactions completed after May 8, 2014 and would sunset after two years, unless reenacted by Congress.

Current tax law treats a foreign company as a U.S. corporation after an acquisition if at least 80% of the foreign company’s shares are owned by the U.S. company’s shareholders, the foreign company acquires substantially all of the assets of the U.S. company, and the foreign company and its affiliates do not have “substantial business activities” in the foreign company’s home jurisdiction.  U.S. companies that merge with a foreign company can generally avoid this result if the foreign company’s shareholders receive more than 20% of the combined company’s stock in the merger.