Tax-Free Spinoffs in the International Tax Context and the Danger of Subpart F Income Inclusion
By Anthony Diosdi There are many good business reasons that a corporate group may decide to enter a corporate division transaction to separate one or more trades or businesses from another distinct trade or business. Such transactions are commonly referred to as corporate “spin-offs,” “split-ups,” or “spit-offs.” To illustrate the elements of these transactions, assume that Alex and Bertha each own 50 percent of the stock of Diverse Corporation (“D”), which for many years has operated a winery and chicken ranch as separate divisions. The shareholders wish to divide the business into two separate corporations on a tax-free basis. The division method they choose should be influenced by nontax goals. Below, please see Illustration 1., Illustration 2., and Illustration 3., which demonstrate examples of corporate “spin-offs,” “split-ups,” and “spit offs.”…