Temporary Regulations Regarding Outbound Transactions
On January 16, 2014, the Treasury Department issued temporary regulations under Section 7874 (often referred to as the “anti-inversion” rule) of the Internal Revenue Code of 1986, as amended, that provide additional rules for outbound acquisitions of a domestic company by a foreign company. Specifically, the temporary regulations provide further guidance as to when a foreign company is subject to adverse treatment as a “surrogate foreign corporation” under the anti-inversion rule. These new regulations are important because they help prevent the unintended application of the anti-inversion rule in outbound acquisitions predominantly for cash where management individuals roll over their equity into the foreign company’s stock (so long as the rollover represents under 5 percent of the foreign company’s stock).