On April 4, 2016, the Treasury Department and the Internal Revenue Service issued a sweeping package of new regulations intended to curtail inversion transactions (the “Regulations”). Many features of the Regulations had been previewed by prior IRS guidance and therefore were anticipated.1 However, the Regulations also introduced new and largely unexpected anti-inversion rules addressing so-called “serial inversions” and other multi-step inversions, as described below.

At least as surprising and of much broader relevance, the Regulations also take direct aim at “earnings stripping” transactions whereby intragroup financing is used to reduce U.S. taxable income. Although Treasury was known to be considering earnings stripping guidance, it was widely expected that either such guidance would not be issued at all, given a potential lack of Treasury authority, or the guidance would be limited to taxpayers that had previously expatriated. Importantly, the proposed earnings stripping rules that were issued are not limited to the inversion context and instead are of potential relevance in a wide range of commercial situations, including for any multinational group that utilizes internal financing.