Private Letter Ruling
201622012
Released May 27, 2016
Approved
Cross-border target transaction treated as liquidation and qualified stock purchase
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Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)
Plain-English summary
A U.S. parent planned to acquire a publicly traded foreign target through a foreign disregarded acquisition subsidiary. Depending on the ownership level after the tender offer, the target would either sell all business assets for a note and liquidate or be acquired through a statutory buyout. Under the asset-sale route, the note would be canceled through the liquidating distribution and minority shareholders would receive cash. The IRS ruled that the asset sale and note cancellation would be treated as part of the target's complete liquidation, as though the target distributed its assets subject to liabilities. It also ruled that the acquisition was a qualified stock purchase under IRC § 338(d)(3).
Ruling snapshot
- Question: How would the target's asset transfer and liquidation be characterized, and was the stock acquisition a qualified stock purchase?
- Outcome: Approved, liquidation treatment and qualified-stock-purchase status confirmed
- Key authorities: IRC §§ 332 and 338(d)(3); Rev. Rul. 78-397; Rev. Rul. 83-142
Full text (IRS public release)
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 201622012 Third Party Communication: None
Release Date: 5/27/2016 Date of Communication: Not Applicable
Index Number: 332.00-00, 338.02-00
Person To Contact:
----------------------------- ------------------------, ID No. ----------------
----------------------------------------- Telephone Number:
------------------------- --------------------
---------------------------------------- Refer Reply To:
-------------------------- CC:CORP:B01
PLR-129512-15
Date:
March 01, 2016
LEGEND
Parent = -------------------------
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Target = ------------------------
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FSub = ----------------------------------------------------------
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Acquisition Sub = ------------------------------
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Country A = ----------------------
State A = ------------
Business Entity A = -----------------------------------------------------------------------
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Date 1 = ----------------
Acceptance Period = --------------------------------------------------------
PLR-129512-15 2
Asset Sale Range = ------------------------------------------------------------------------
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Asset Sale Resolutions = ------------------------------------------------------------------------
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Signing Conditions = ------------------------------------------------------------------------
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Offer Conditions = ------------------------------------------------------------------------
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Minimum Acceptance
Percentage = ------------------------------------------------------------------------
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a = ---
Dear --------------------:
This letter responds to your authorized representative's letter dated September 2, 2015,
requesting rulings regarding certain federal income tax consequences of a proposed
transaction (the “Proposed Transaction”). The information submitted in that request is
summarized below.
PLR-129512-15 3
The rulings contained in this letter are based upon facts and representations submitted
by the taxpayer and accompanied by penalties of perjury statements executed by an
appropriate party. This office has not verified any of the material submitted in support of
the request for rulings. Verification of the information, representations, and other data
may be required as part of the audit process.
This letter is issued pursuant to section 6.03 of Rev. Proc. 2016-1, 2016-1 I.R.B. 1,
regarding one or more significant issues under sections 332, 351, 355, 368, or 1036 of
the Internal Revenue Code (the “Code”). The rulings contained in this letter only
address one or more discrete legal issues involved in the transactions described herein.
This Office expresses no opinion as to the overall tax consequences of the transactions
described in this letter or as to any issue not specifically addressed by the rulings below.
SUMMARY OF FACTS
Parent is a publicly traded State A corporation and is the common parent of an affiliated
group of companies that files a consolidated return for U.S. federal income tax
purposes. Parent directly or indirectly owns all of the stock of FSub, a Country A entity
treated as a corporation for U.S. federal income tax purposes. FSub owns all of the
interests in Acquisition Sub, a Country A entity that is treated as a disregarded entity for
U.S. federal income tax purposes.
Target is a Country A corporation and is the common parent of an affiliated group of
companies. Target’s stock is traded on a Country A stock exchange and has one class
of shares outstanding. Target’s stock includes ordinary shares represented by
American Depositary Receipts ("ADRs") traded on a U.S. stock exchange.
PROPOSED TRANSACTION
On Date 1, Parent and Target entered into an agreement pursuant to which Parent will
make a public offer to acquire all of the shares of Target. The relevant steps of the
Proposed Transaction, some of which have already occurred, are set forth below:
(i) Parent will make a public tender offer (the “Tender Offer”) to acquire all
issued and outstanding shares of Target, including all issued and outstanding
ADRs. The Tender Offer will be open during the Acceptance Period, and will
be subject to the Offer Conditions, including the Minimum Acceptance
Percentage. If after settlement of the Tender Offer, Acquisition Sub were to
own Target stock representing the Asset Sale Range, Target shareholders
would be required to approve the Asset Sale Resolutions.
(ii) Assuming all Offer Conditions are satisfied, Acquisition Sub will buy tendered
shares at the agreed upon price per share as stated in the Tender Offer (the
“Settlement”). Acquisition Sub may continue to purchase Target shares or
PLR-129512-15 4
ADRs after the Settlement (the Settlement and any subsequent purchase of
Target shares by Acquisition Sub together the “Acquisition”).
(iii) If following the Settlement, Acquisition Sub owns an amount of Target stock
falling within the Asset Sale Range, the board of directors of Acquisition Sub
will adopt a resolution (the “Acquisition Sub Resolution”) in order to implement
the Asset Sale and the dissolution of Target (the Asset Sale and the
dissolution of Target collectively the “Proposed Liquidation”).
(iv) After the Acquisition Sub Resolution and all Asset Sale Resolutions have
been approved, Target and Acquisition Sub will enter into an agreement (the
“Asset Sale Agreement”). Execution of the Asset Sale Agreement will be
subject to the Signing Conditions.
(v) Once the Signing Conditions are satisfied, Acquisition Sub will cause Target
to sell all of Target’s business assets to Acquisition Sub (the “Asset Sale”) for
a note (the “Asset Sale Note”).
(vi) Following the Asset Sale, Target will make liquidating distributions consisting
of (1) the cancellation of the Asset Sale Note via setoff against any payment
by Target to Acquisition Sub pursuant the liquidating distribution, and (2) cash
to any shareholder other than Acquisition Sub or its affiliates (the “Minority
Shareholders”) in redemption of their shares.
(vii) Following the cancellation of the Asset Sale Note and the redemption of
shares held the Minority Shareholders, the shares and ADRs of Target will be
delisted from the Country A stock exchange.
(viii) Following the delisting of its shares, Target will convert into Business Entity A
pursuant to Country A law and will elect to be disregarded as separate from
its owner for U.S. federal income tax purposes.
(ix) Once the opposition period under Country A law lapses, and all opposition is
withdrawn or settled, Target will make a final distribution of its assets (if any)
to its shareholders.
(x) In the event that, after the Settlement of the Tender Offer, Acquisition Sub
owns more than a percent of the stock of Target, then Acquisition Sub will be
required under Country A law to acquire the Target stock held by any Minority
Shareholders through a statutory buy-out proceeding and steps (iii) through
(vii) will not occur.
RULINGS
PLR-129512-15 5
1. The Asset Sale for the Asset Sale Note and the cancellation of the Asset Sale
Note will be treated as a distribution in the Proposed Liquidation rather than as a
sale of property to Acquisition Sub. The Proposed Liquidation will be treated as if
Target distributed all of its business assets subject to liabilities to Acquisition Sub
and distributed cash to the Minority Shareholders in complete liquidation. See
Rev. Rul. 83-142, 1983-2 C.B. 68; Rev. Rul. 78-397, 1978-2 C.B. 150.
2. The Acquisition is a qualified stock purchase within the meaning of section
338(d)(3).
CAVEATS
Except as expressly provided herein, no opinion is expressed or implied concerning the
tax treatment of the Proposed Transaction under any provision of the Code or the
regulations promulgated thereunder or the tax treatment of any condition existing at the
time of, or effects resulting from, the Proposed Transaction that is not specifically
covered by the above rulings.
PROCEDURAL STATEMENTS
A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.
In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.
Sincerely,
Mark J. Weiss
Branch Chief, Branch 2
Office of Associate Chief Counsel
(Corporate)
cc:
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