April 18, 1994
New Rules Tax Certain Foreign Reorganizations
WASHINGTON - The Internal Revenue Service announced today that
regulations will be issued on the taxation of corporate
reorganizations involving transfers by U.S. shareholders of stock
of U.S. corporations to foreign corporations. The announcement was
made in IRS Notice 94-46.
Under the regulation, a U.S. shareholder that exchanges stock
of a U.S. corporation for stock of a foreign corporation in an
otherwise tax-free reorganization will be subject to tax if all
exchanging U.S. shareholders own 50 percent or more of the stock of
the foreign corporation after the exchange. The regulations will be
issued under IRC 367(a) and will apply to transfers occurring on or
after April 18, 1994.
The notice was issued in response to certain tax-motivated
restructurings recently undertaken by widely-held U.S. companies
with foreign subsidiaries. These restructurings typically involve a
transfer of the stock of the U.S. parent corporation to an existing
foreign subsidiary or a newly-formed foreign corporation in exchange
for shares of the foreign corporation. As a result of the
transaction, the shareholders own the U.S. corporation indirectly
through a foreign holding company.
Notice 94-46 will appear in Internal Revenue Bulletin 1994-18
on May 2, 1994 and solicits taxpayer comments on whether
transactions undertaken for non-tax purposes would unintendedly be
affected by the regulations. As appropriate, the regulations will
provide exceptions for such transactions.
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