Congress and the administration are under increasing pressure to
stem the flow of recent inversion transactions, whereby a U.S.
company merges with a foreign company and uses the transaction to
reorganize as a foreign company, while retaining substantial U.S.
business operations.
Treasury Secretary Jacob Lew said last week that the department
is very near a decision on whether to issue guidance to make
inversions less "economically appealing" for U.S.
companies. Treasury appears to be working not on strengthening the
actual anti-inversion rules under Section 7874, but instead on
curbing the benefits of the "earnings stripping" that
inverted companies use after a transaction. Interim guidance that
is immediately effective could come in the form of a notice as
early as the week of Sept. 15. Treasury may have the authority to
issue guidance under Section 385 to limit deductions for
related-party debt after an inversion or to reclassify debt as
equity under Section 956.
