US Tax Authority Issues Final Inversion Regulations

US Tax Authority Issues Final Inversion Regulations

The US Internal Revenue Service (IRS) has issued final regulations on inversions and related transactions.

The final regulations – issued on July 12 – address transactions that are structured to avoid the purposes of sections 7874 and 367 of the Internal Revenue Code and certain post-inversion tax avoidance transactions.

The regulations affect certain domestic corporations and domestic partnerships whose assets are directly or indirectly acquired by a foreign corporation and certain persons related to such domestic corporations and domestic partnerships.

The regulations finalize proposed regulations, and remove temporary regulations, published on April 8, 2016. The final regulations are effective from July 12.

Greg Kidder, partner at Steptoe & Johnson’s Washington office, said: “The final inversion regulations suggest that Treasury continues to believe that, following Tax Reform, there are opportunities for US companies to engage in transactions to become foreign companies. Except for certain modest changes, the final regulations are generally consistent with the proposed regulations.”

“Those regulations were quite expansive and addressed the Obama administration’s views of problems from an imperfect statute. That the Trump administration chose to keep those regulations largely intact is notable. It will be interesting to see how this use of regulatory authority will affect the discussion about the general scope of Treasury’s regulatory authority for Tax Reform provisions, many of which are also considered flawed.”