The US Treasury Department and US Internal Revenue Service have issued Notice 2014-32 revising the final regulations on certain cross-border triangular reorganizations. The Notice applies where the reorganization involves one or more foreign corporations and the acquiring subsidiary corporation uses property to acquire the stock of its parent corporation.
The Notice clarifies that the deemed contribution provisions originally included in the final regulations are to be removed, and this would potentially result in current taxation without a corresponding increase in the stock basis of the acquiring corporation. The Notice also adjusts the priority rule in Treas. Reg. Section 1.367(a)-3(a)(2)(iv) which operates to stop the application of Section 367(a) to exchanging US shareholders of the target corporation if the issuing corporation recognizes a greater amount of dividend income or Section 301(c)(3) gain under Treas. Reg. Section 1.367(b)-10 as compared to the shareholder-level gain to be recognized under Section 367(a).
