U.S. Rules on Corporate Expatriations Carl Dubert 16 April 2009.
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U.S. Rules on Corporate Expatriations Carl Dubert 16 April 2009
Transcript of U.S. Rules on Corporate Expatriations Carl Dubert 16 April 2009.
U.S. Rules on Corporate Expatriations
Carl Dubert
16 April 2009
Seite 2Washington, DCPricewaterhouseCoopers
16 April 2009
Where do corporations live?
• Expatriate: - To withdraw from residence in or allegiance to one‘s native country
• Query:- What is the „native country“ of a multinational corporation?
• Corporate Expatriation- Changing the location of corporate tax residence of the parent of a
multinational group of companies
Seite 3Washington, DCPricewaterhouseCoopers
16 April 2009
U.S. Rules on Corporate Tax Residence
• Place of Incorporation Theory
- Domestic: if organized under U.S. law or under the law of a U.S. State
- Foreign: if organized solely under foreign law
• Most other countries follow different theories (e.g., place of management)
Seite 4Washington, DCPricewaterhouseCoopers
16 April 2009
Initial Response to Corporate Expatriations – IRC § 367(a)
• Complex set of rules, with significant modifications in 1986 & 1994-96
- Current taxation of gains at shareholder level, or
- Current taxation of gains at corporate level
• Issue:- In a down market, i.e., when gains are small or nil, current taxation is
not an effective barrier to expatriation
Seite 5Washington, DCPricewaterhouseCoopers
16 April 2009
Latest Response to Corporate Expatriations – IRC § 7874
• New statutory framework enacted in 2004
- Domestication of the foreign acquiring corporation (80% ownership), or
- Limits on use of U.S. tax attributes (60% ownership)
• Implementing regulations have both narrowed and broadened the scope- Some key terms still undefined
Seite 6Washington, DCPricewaterhouseCoopers
16 April 2009
Inversions under IRC § 7874
• Classic Inversion (Example)
US
F
Shareholders Shareholders
Tax Haven
US F
Seite 7Washington, DCPricewaterhouseCoopers
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Inversions under IRC § 7874
• Successful Inversion (Example)
US
F
Shareholders Shareholders
Country X
US F
Group has 10% of employees, assets & sales in Country X.
Seite 8Washington, DCPricewaterhouseCoopers
16 April 2009
Inversions under IRC § 7874
• Accidental Inversion (Example 1)
USA
D1 D2
N
F
N
D1 D2
USA
60% 40%
F
Seite 9Washington, DCPricewaterhouseCoopers
16 April 2009
Inversions under IRC § 7874
• Accidental Inversion (Example 2)
N
D1 D2
USA
60% 40%
USA
D1 D2
60% 40%
Seite 10Washington, DCPricewaterhouseCoopers
16 April 2009
Inversions under IRC § 7874
• Accidental Inversion (Example 3) – or perhaps not
N
D1 D2
US1
US1
D1 D2
US2
US2
Seite 11Washington, DCPricewaterhouseCoopers
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Inversions under IRC § 7874
• Accidental Inversion (Example 4)
N
USA
USA
Nonresident alien
Nonresident alien
Seite 12Washington, DCPricewaterhouseCoopers
16 April 2009
Inversions under IRC § 7874
• Accidental Inversion (Example 5)
Investors
USP
FP
Foreign Business
Investors
USP
Foreign Business
N
Investors
Investors
FC
