Pending legislation could thwart corporate inversions

July 3, 2014

Practitioner Insights thumbnail 2(Editor’s Note: This post is an excerpt from an article appearing in Practitioner Insights on WestlawNext)

The recently proposed Stop Corporate Inversions Act of 2014 is presenting concerns for companies considering reincorporating overseas. ChiquitaFyffes PLC was the first issuer to disclose such concerns, and now two more companies planning a merger have addressed potential risk factors related to the pending legislation.

If enacted, the Stop Corporate Inversions Act of 2014 would significantly reduce a tax loophole that allows U.S. companies that merge with foreign companies to reincorporate offshore in lower-tax jurisdictions.

The proposed legislation increases the needed percentage change in stock ownership to reincorporate offshore from 20 percent to 50 percent. Further, the act provides that the surviving company will nevertheless continue to be treated as a domestic U.S. company for tax purposes if management and control of the merged company remains in the United States and either 25 percent of its employees or sales or assets are located in the United States.

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