In what may be the first of a series of steps, the government
took decisive action today to ensure that shareholders of US
companies inverting by merger must pay tax on the transfer of their
US company shares if they hold a majority of the combined
company's equity.
Notice 2014-32 does not affect the central inversion rules but
instead prevents US company shareholders from deferring tax under
the tax-free reorganization rules on certain inversions. The
Notice applies immediately, subject to a limited grandfather
rule.
Although the Notice will affect only a small subset of inversion
transactions that could be structured to shield US company
shareholders from tax, it further evidences the government's
narrow reading of the inversion rules and dovetails with the Obama
Administration's 2015 budget proposal to narrow the scope of
permitted inversions.
The Notice may not be the last piece of guidance released,
underscoring the benefits of focusing now on inversion
transactions.
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