u.s. rules on corporate expatriations carl dubert 16 april 2009
TRANSCRIPT
U.S. Rules on Corporate Expatriations
Carl Dubert
16 April 2009
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Where do corporations live?
• Expatriate: - To withdraw from residence in or allegiance to one‘s native country
• Query:- What is the „native country“ of a multinational corporation?
• Corporate Expatriation- Changing the location of corporate tax residence of the parent of a
multinational group of companies
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U.S. Rules on Corporate Tax Residence
• Place of Incorporation Theory
- Domestic: if organized under U.S. law or under the law of a U.S. State
- Foreign: if organized solely under foreign law
• Most other countries follow different theories (e.g., place of management)
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Initial Response to Corporate Expatriations – IRC § 367(a)
• Complex set of rules, with significant modifications in 1986 & 1994-96
- Current taxation of gains at shareholder level, or
- Current taxation of gains at corporate level
• Issue:- In a down market, i.e., when gains are small or nil, current taxation is
not an effective barrier to expatriation
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Latest Response to Corporate Expatriations – IRC § 7874
• New statutory framework enacted in 2004
- Domestication of the foreign acquiring corporation (80% ownership), or
- Limits on use of U.S. tax attributes (60% ownership)
• Implementing regulations have both narrowed and broadened the scope- Some key terms still undefined
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Inversions under IRC § 7874
• Classic Inversion (Example)
US
F
Shareholders Shareholders
Tax Haven
US F
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Inversions under IRC § 7874
• Successful Inversion (Example)
US
F
Shareholders Shareholders
Country X
US F
Group has 10% of employees, assets & sales in Country X.
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Inversions under IRC § 7874
• Accidental Inversion (Example 1)
USA
D1 D2
N
F
N
D1 D2
USA
60% 40%
F
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Inversions under IRC § 7874
• Accidental Inversion (Example 2)
N
D1 D2
USA
60% 40%
USA
D1 D2
60% 40%
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Inversions under IRC § 7874
• Accidental Inversion (Example 3) – or perhaps not
N
D1 D2
US1
US1
D1 D2
US2
US2
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Inversions under IRC § 7874
• Accidental Inversion (Example 4)
N
USA
USA
Nonresident alien
Nonresident alien
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Inversions under IRC § 7874
• Accidental Inversion (Example 5)
Investors
USP
FP
Foreign Business
Investors
USP
Foreign Business
N
Investors
Investors
FC