A foreign parent's redomiciliation keeps its F-reorganization status despite a gap before the disregarded-entity election and stock trading in between

Plain-English summary

An "F reorganization" is a tax-free corporate reorganization defined as a mere change in a company's identity, form, or place of organization, and moving a corporation's place of incorporation from one country to another can qualify. Here a publicly traded foreign parent planned to redomicile from one country to another by forming a new holding company (Resulting), having its shareholders swap their old parent stock for new company stock, listing the new stock on a different exchange, and then converting the old parent and electing to treat it as a disregarded entity for U.S. tax purposes. The company asked the IRS to rule on two "significant issues": whether the several-day gap between the shareholder exchange and the disregarded-entity election, and any trading of the new company's shares during that gap, would prevent the deal from qualifying as an F reorganization. The IRS ruled favorably on both, holding that the interim period and interim stock trades do not disqualify F-reorganization treatment, and that the steps are treated as a contribution of the old parent's stock to the new company followed by the election. Notably, the IRS expressly declined to rule on whether the overall transaction actually qualifies as an F reorganization. It matters to multinationals that redomicile through a new holding company and want to preserve tax-free treatment.

Ruling snapshot

• Question: Do a multi-day gap before a disregarded-entity election, and stock trading during that gap, prevent a foreign parent's redomiciliation from qualifying as an F reorganization under § 368(a)(1)(F)?
• Outcome: approved (the interim period and interim stock sales do not prevent F-reorganization treatment; the steps are recast as a stock contribution followed by the election)
• Key authorities: IRC § 368(a)(1)(F); Treas. Reg. §§ 1.368-2(m), 301.7701-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202339009                                              Third Party Communication: None
 Release Date: 9/29/2023                                        Date of Communication: Not Applicable
 Index Number: 368.06-00
                                                                Person To Contact:
 ---------------                                                -------------------, ID No. -----------------
 ------------------------------                                 Telephone Number:
 -----------------------------------                            --------------------
 -----------------------                                        Refer Reply To:
 ------------------------------------------------------------   CC:CORP:B05
 ---------------                                                PLR-113736-22
                                                                Date:
                                                                October 17, 2022




Legend

Parent                              = ------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
                                             -------------------------

FSub                                = ------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
                                             -------------------------

US Sub                              = ------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
                                             -------------------------

Resulting                           = ------------------------------------------------------------------

Country A                           = ----------------

Country B                           = ---------------------

Country C                           = ---------------

State D                             = -------------

Exchange Y                          = ------------------------------------------

Exchange Z                          = ------------------------------------

a                                   = -----------------------
PLR-113736-22                                2




Dear ---------------:

This letter responds to your letter dated July 14, 2022 requesting rulings on certain
federal income tax consequences of a series of transactions (the “Proposed
Transaction,” as defined below). The material information submitted in that request and
subsequent correspondence is summarized below.

This letter is issued pursuant to section 6.03(2) Rev. Proc. 2022-1, 2022-1 I.R.B. 1,
regarding one or more significant issues under section 368 of the Internal Revenue
Code (the “Code”). This office expresses no opinion as to any issue not specifically
addressed by the rulings below.

The rulings contained in this letter are based upon facts and representations submitted
by the taxpayer and accompanied by a penalties of perjury statement 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.

                                   Summary of Facts

Parent, a Country A corporation, is the foreign parent of a worldwide group (collectively,
the “Parent Group”). Parent has a single class of voting common stock outstanding that
is owned by the public (the “Shareholders”) and publicly traded. Parent’s stock is
primarily listed on Exchange Y.

Parent owns all of the stock of FSub, a foreign corporation organized under the laws of
Country C. FSub, through its subsidiaries, owns and operates all of the Parent Group’s
foreign business operations.

Parent owns all of the stock of US Sub, a U.S. corporation organized under the laws of
State D. US Sub is the common parent of an affiliated group of corporations that files a
consolidated return for federal income tax purposes. Prior to the Proposed Transaction,
Parent will contribute all of the stock of US Sub to FSub.

                                 Proposed Transaction

For what are represented to be valid business purposes, Parent intends to redomicile in
Country B through the following steps (collectively, the “Proposed Transaction”):

1. Parent will form Resulting, a Country B corporation. Parent will own a nominal
   amount of shares of Resulting.
PLR-113736-22                                3


2. Parent will subscribe for additional shares of Resulting for nominal consideration and
   instruct Resulting to issue such shares for the benefit of the Shareholders on its
   behalf, in the same ratio as their ownership in Parent. The nominal amount of
   shares of Resulting held by Parent will be cancelled.

3. Parent will sell all of the shares of FSub to Resulting pursuant to the laws of Country
   A in exchange for promissory notes. The notes will be non-interest bearing, demand
   notes with a face value equal to the fair market value of FSub’s shares.

4. The Shareholders will exchange all of their Parent stock for Resulting stock (the
   “Resulting Exchange”).

5. Resulting’s shares will be listed on and begin trading on Exchange Z.

6. Parent will file a notice of amendment to convert into a Country A private limited
   company (an eligible entity for purposes of Treas. Reg. §301.7701-3).
   Approximately a days after the Resulting Exchange and during which time
   Resulting’s shares will be traded on Exchange Z, Parent will convert.

7. Effective as of the date of the conversion, Parent will make an election to be
   classified as disregarded from its owner for federal income tax purposes (the
   “Election”).

                                    Representations

1. Step 3 will be structured as a sale transaction solely for Country A purposes.

2. No planned purchase or sale of stock of Resulting during the period of time between
   the Resulting Exchange and the Election will be included as part of the Plan of
   Reorganization.

                                        Rulings

Based solely on the information submitted and representations made, we rule as
follows:

1. For federal income tax purposes, Steps 2, 3, 4, 6, and 7 of the Proposed
   Transaction will be treated as if 100 percent of the stock of Parent was contributed to
   Resulting and, subsequently, Parent made an election to be classified as
   disregarded from its owner for federal income tax purposes.

2. The period of time between the Resulting Exchange and the Election will not prevent
   the Proposed Transaction from qualifying as a reorganization under section
   368(a)(1)(F).
PLR-113736-22                                  4


3. Sales or exchanges of Resulting stock during the period of time between the
   Resulting Exchange and the Election will not prevent the Proposed Transaction from
   qualifying as a reorganization under section 368(a)(1)(F). Treas. Reg. §1.368-
   2(m)(1)(ii).

                                          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
regulations or the tax treatment of any conditions existing at the time of, or effects
resulting from, the Proposed Transaction that is not specifically addressed by the above
rulings. Furthermore, no opinion is expressed regarding whether the Proposed
Transaction constitutes a reorganization under section 368(a)(1)(F).

                                  Procedural Statements

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that
it may not be used or cited as precedent.

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.

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,

                                           _Douglas C. Bates_________
                                           Douglas C. Bates
                                           Chief, Branch 4
                                           Office of Associate Chief Counsel (Corporate)



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