Introduction to Corporate Cross-Border Transfers, Reorganizations, and Inversions Part 4. “U.S. Taxation of Foreign-to-Foreign Acquisitive Reorganizations”
By Anthony Diosdi One would think that the acquisition of one foreign corporation by another foreign corporation would not trigger a U.S. tax consequence. However, in today’s world of cross-border investing, a foreign-to-foreign corporate acquisition or reorganization may trigger U.S. tax consequences. In particular, the liquidation of a foreign corporation into another foreign corporation could result in taxable gain on the distribution of any property used by the distributing foreign corporation in the conduct of a U.S. trade or business at the time of liquidation. See Treas. Reg. Section 1.367(e)-2(c)(2)(i)(A). An exception to this recognition-of-gain rule applies if the distributee foreign corporation continues for a ten-year period to use the property in the conduct of a trade or business (other than U.S. real property interests) and the distributing and distributee…