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Sunday, June 02, 2013


Code §368(a)(1)(F) facilitates the movement of corporations from one jurisdiction to another by generally treating such reorganizations as not being subject to corporate income tax at the corporate or shareholder level. A recent General Counsel Advice reminds us that if the movement is from a U.S. jurisdiction to a non-U.S. jurisdiction (that is, it is an “outbound” reorganization), it may not be income tax-free.

The potential problem in this scenario is Code §367(d). This provision creates deemed annual income to a domestic transferor of intangible property to a non-U.S. corporation. Under the facts of the General Counsel Advice, the corporation that changed from a domestic to a foreign corporation owned intangible property, thus triggering Code §367(d), notwithstanding Code §368(a)(1)(F).

Normally, Code §367(d) will result in annual income to the transferor, based on what payments unrelated parties would pay for the use of the intangible property contingent on its use over the useful life of the intangible property. However, if there is a later disposition of the intangible property, this income will be accelerated into the year of disposition based on the value of the intangible.

In the opinion of the General Counsel, the 3 deemed dispositions of stock and assets that occur during an outbound F reorganization trigger both the annual income payments and the acceleration of those income payments under the disposition rule.

CCA 201321018


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