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US eases foreign distribution

01 October 1999

The IRS’ active summer included final regulations on the treatment of distributions to foreign shareholders. This is good news for shareholders but taxpayers should beware the anti-abuse provisions. Mike Swanick and Aldrich Boss of PricewaterhouseCoopers in London report

The US Internal Revenue Service (IRS) has published final regulations on the treatment of distributions to foreign shareholders under Internal Revenue Code (IRC) sections 367(e)(1) and (2). The final regulations address the tax consequences of three types of distributions to foreign shareholders:

l a distribution by a domestic company of its subsidiary's stock under IRC section 355 (outbound distribution);

l a liquidation of a domestic corporation into a foreign parent corporation in a transaction described in IRC section 332 (outbound liquidation); and

l a liquidation of a foreign corporation into a foreign parent corporation in a transaction described in IRC section 332 (foreign-to-foreign liquidation).

The final regulations as a whole are a positive development for taxpayers, as an outbound section 355 distribution of the stock of a domestic corporation no longer requires gain recognition and the exceptions to taxation of an outbound liquidation have been expanded. However, new anti-abuse provisions have been created which echo...



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