On September 29, 2017, the United States District Court for the Western District of Texas struck down a 2016 temporary regulation designed to limit corporate inversions(the “Rule”). Rule was simultaneously issued as a temporary regulation effective immediately and as a proposed regulation. In a brief opinion, the court held that the Rule was subject to the notice and comment requirements of the Administrative Procedure Act (the “APA”), and because those requirements had not been followed, the Rule was invalid.

Background -

In April 2016, the United States Department of the Treasury (“Treasury”) issued the Rule as part of a package of regulations targeting corporate inversions (the “Anti-Inversion Regulations”). The Anti-Inversion Regulations aimed to limit transactions in which a multinational group with a U.S. parent is restructured so that a foreign company acquires the U.S. parent, thereby becoming the new parent of the multinational group. Such transactions, commonly known as “ inversions,” can result in the reduction or elimination of the group’s U.S. tax liability. Section 7874—the Internal Revenue Code’s primary anti-inversion provision—imposes tax on the “inversion gain” that results from such transactions, and may even subject the foreign corporation to U.S. taxation as a domestic corporation.