Regulatory Developments Under § 367 Affecting Transfers of Appreciated Property to Foreign Corporations -

Introduction:

On September 14, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) released (1) proposed regulations under section 367 of the Internal Revenue Code (the Code) effective (when finalized) retroactively to transfers occurring on or after September 16 (the Proposed Section 367 Regulations), together with (2) temporary regulations under section 482, effective immediately (applicable to tax years ending on or after September 14, 2015) (the Temporary Section 482 Regulations). Among other things, both sets of rules mark dramatic departures from existing guidance regarding cross-border transfers of intangibles. This article focuses on the Proposed Section 367 Regulations.

Summary of Significant Changes from Previous Guidance -

The Proposed Section 367 Regulations:

..Eliminate the foreign goodwill and going concern value exception under Treasury regulations section 1.367(d)-1T;

..Limit the scope of property eligible for the active trade or business exception generally to certain tangible property and financial assets;

..Allow taxpayers to apply section 367(d) (rather than 367(a)) to transfers of goodwill and going concern value to foreign corporations;

..Provide that, in cases where an outbound transfer of property subject to section 367(a) constitutes a controlled transaction, the value of the property transferred is to be determined in accordance with the Temporary Section 482 Regulations; and

..Eliminate the 20-year limitation on intangible property transferred under section 367(d).