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Treasury Issues Regulations Imposing Additional Restrictions on Inversion Transactions
7 April 2016
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On April 4, 2016, the Treasury Department and the IRS issued Temporary Regulations intended to curtail tax inversion transactions and to eliminate the benefits of certain post-inversion “tax avoidance” strategies.
Although the Temporary Regulations generally conform to the rules announced in two prior administrative notices, they also introduce a significant new rule addressing multiple-step acquisitions of U.S. entities, which has resulted in the termination of the Pfizer-Allergan merger.
In connection with the issuance of the Temporary Regulations, Treasury and the IRS also issued proposed regulations that would place significant limitations on debt issuances by a U.S. entity to the foreign acquiring company in connection with an inversion transaction.
The Temporary Regulations retain the cash box rule, including the exceptions to the rule, as described in the administrative notices; importantly for the insurance industry, the Temporary Regulations retain the PFIC insurance exception.
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