Plano, TX asked in Mergers & Acquisitions and Tax Law

Q: Question on IRC 7874 - Rules Regarding Corporate Inversions

I have a question on IRC 7874, which relates to laws on inversions. The ownership test stipulates that, in the event of merger between a US and a foreign company, if US shareholders own less that 80% of the combined firm, then the combined firm can be considered a foreign entity for tax purposes. Given this law, if a US company wanted to invert to Bermuda, then could they simply acquire any sufficiently large foreign company, or is there some restriction on the makeup of the foreign shareholders? For example, it would be logical if the foreign ownership needs to be primarily in Bermuda, but the law makes no mention of this.

1 Lawyer Answer
D. Mathew Blackburn
D. Mathew Blackburn
  • Tax Law Lawyer
  • Englewood, CO

A: It's not required for US law but you'd need to check Bermuda's rules for their treatment of foreign shareholders.

Be careful applying logic to tax law.

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