September 23, 2014
Treasury Issues Long-Awaited Anti-Inversion Guidance
As noted in this Davis Polk memo, the Treasury Department and the IRS yesterday released Notice 2014-52, which describes regulations that the government intends to issue to target the tax benefits of corporate inversions, including for pending transactions. These rules would generally apply to any inversion transaction in which the shareholders of the U.S. corporation own 60% or more of the stock of the combined company and which does not satisfy the “substantial business activities” exception in Section 7874 if the transaction closes on or after September 22, 2014 (the issue date of the Notice), with no grandfathering provision for signed but not yet completed transactions. Following weeks of robust public discussion as to the extent of Treasury’s authority to issue anti-inversion regulations, the Notice goes to great lengths—more so than most IRS notices—to identify and develop Treasury’s case for the underlying legal authority for the contemplated regulations. Notably, the Notice does not contain any earnings-stripping rules.