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On November 19, 2015, Treasury issued Notice 2015-79 (the “Notice”), which announces Treasury’s intent to issue regulations reducing the tax benefits available to inverted groups and making it more difficult for some U.S. companies to invert. The Notice, which includes rules governing inversions and post-inversion restructuring, notably does not impose additional limits on earnings stripping. The Notice generally applies to inversions completed after November 18, 2015.
A foreign acquiror’s shareholders must own more than 20% of the foreign acquiror’s stock after a U.S. target’s acquisition for the foreign acquiror to avoid being treated as a U.S. corporation. The Notice confirms that “stuffing” the foreign acquiror with active assets, as well as cash or passive assets, with a principal purpose of satisfying the 20% rule will be disregarded. This anti-stuffing rule may reduce a foreign acquiror’s size, and so the amount of stock its shareholders are treated as holding, by disregarding prior asset and/or stock acquisitions that were part of a plan that includes the inversion. Applies to acquisitions completed after November 18, 2015.
Increased Cost of Post-Inversion Restructuring
Tax Residency Limitations
While the Notice presents additional challenges for U.S. companies seeking to invert, many companies should be able to navigate these challenges successfully and invert with proper planning.