FROM THE OFFICE OF PUBLIC AFFAIRS
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January 5, 2005
js-2179
Treasury Provides Guidance on Cross-Border Mergers
The Treasury Department and the Internal Revenue Service have issued proposed regulations providing guidance on the tax consequences of certain cross-border corporate mergers.
Existing regulations under section 368 of the Internal Revenue Code provide rules regarding the necessary conditions for corporate transactions to qualify as tax-free reorganizations. One type of transaction that may qualify as a tax-free reorganization is a "statutory merger." The existing regulations limit the scope of the term "statutory merger" to mergers of domestic corporations. In 2003, temporary and proposed regulations were issued to provide a functional definition of the term "statutory merger," in order to reflect developments in state corporation laws since the term was first defined in 1935.
The preamble to the 2003 regulations indicated that Treasury and the Internal Revenue Service were considering further revisions to the regulations under section 368 to address mergers that involve one or more foreign corporations. Many foreign jurisdictions now have merger laws that operate in material respects like those of the states, such that transactions effected under these laws could satisfy the functional criteria of the 2003 regulations. The Treasury Department and the Internal Revenue Service believe that consistent treatment of functionally equivalent transactions is warranted in light of the purpose of section 368. The new proposed regulations would permit mergers involving foreign corporations to qualify as statutory mergers.
The new guidance also contains detailed rules regarding the collateral consequences of cross-border corporate reorganizations, including cross-border mergers. This guidance includes proposed rules regarding the determination of stock basis in certain triangular reorganizations and proposed rules under section 367 of the Internal Revenue Code relating to cross-border corporate reorganizations.
The proposed regulations and the related notice are attached.
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