On 22 September 2014, and with immediate effect, the Internal Revenue Service (IRS) announced measures both to make it more difficult for US companies to invert, and to reduce the tax benefits of inversions.
The rules apply where a corporate group with a US parent restructures so that a non-US company, based in a jurisdiction with a more favourable tax regime, becomes the new parent. If the shareholders of the former US parent own at least 80% of the new foreign parent, the new foreign parent is treated as a US company for US tax purposes.
In addition, the rules will make it more difficult for US companies to invert by making it harder for the pre-inversion shareholders to satisfy the ‘less than 80%’ test.
Finally, the new rules will target ways in which ‘inverted’ US companies currently access the earnings of their controlled foreign companies without paying US tax.
The IRS announcement also trails likely future measures to further restrict the ability to invert, and the US tax benefits any inversion might otherwise deliver.
To view the IRS announcement, click here.