Corporate Inversion Transactions: IRS and Treasury Issue Temporary Regulations Intended to Limit Ability of Corporations to Invert and Reduce the Tax Benefits of Inversion Transactions

Sullivan & Cromwell LLP - April 14, 2016

On April 4, 2016, the Internal Revenue Service (the “IRS”) and the Treasury Department (the “Treasury”) issued new temporary regulations (the “Temporary Regulations”) that address inversion transactions and certain post-inversion transactions. Most notably, the Temporary Regulations add rules that limit so-called “serial inversions.” As described in more detail below, these new rules disregard the value of a foreign corporation’s unrelated domestic entity acquisitions for the purposes of determining the Ownership Fraction (defined below), if such unrelated acquisitions closed within the three-year period prior to signing a new deal.

The rules set forth in the Temporary Regulations are generally otherwise consistent with guidance previously issued in Notice 2014-52 (the “2014 Notice”) and Notice 2015-79 (the “2015 Notice” and, together with the 2014 Notice, the “Notices”), subject to certain modifications, exceptions and additional limitations.

The new rules and modifications will apply to transactions that close on or after April 4, 2016. The other rules provided in the Temporary Regulations that were previously set forth in the Notices will generally apply as described in the original pronouncements.