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CFR > Title 26 - Internal Revenue > CHAPTER I—INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY > SUBCHAPTER A—INCOME TAX (Parts 1–19) > PART 1—INCOME TAXES > 1.367(b)-9—Special rule for F reorganizations and similar transactions.

CFR

1.367(b)-9—Special rule for F reorganizations and similar transactions.

(a) Scope. This section applies to a foreign section 381 transaction (as defined in § 1.367(b)-7(a)) either—
(1) That is described in section 368(a)(1)(F); or
(2) That involves—
(i) At least one foreign corporation that holds no property and has no tax attributes immediately before the transaction, other than a nominal amount of assets (and related tax attributes) to facilitate its organization or preserve its existence as a corporation; and
(ii) No more than one foreign corporation that holds more than a nominal amount of property or has more than a nominal amount of tax attributes immediately before the transaction.
(b) Hovering deficit rules inapplicable. If a transaction is described in paragraph (a) of this section, a foreign surviving corporation shall succeed to earnings and profits, deficits in earnings and profits, and foreign income taxes without regard to the hovering deficit rules of § 1.367(b)-7(d)(2), (e)(1)(iii), and (e)(2)(iii).
(c) Foreign divisive transactions. [Reserved]
(d) Examples. The following examples illustrate the principles of this section:

Code of Federal Regulations

Example 1. (i) Facts. (A) Foreign corporation A is and always has been a wholly owned subsidiary of USP, a domestic corporation. Foreign corporation A was incorporated in 1995, and has always had a calendar taxable year. Foreign corporation A (and all of its respective qualified business units as defined in section 989) maintains a “u” functional currency. On December 31, 2006, foreign corporation A has the following post-1986 undistributed earnings and post-1986 foreign income taxes:
Separate Category E&P Foreign taxes
Passive (1,000u) $5
General 200u 200
(800u) 205
(B) On January 1, 2007, foreign corporation A moves its place of incorporation from Country 1 to Country 2 in a reorganization described in section 368(a)(1)(F). (ii) Result. Under § 1.367(b)-7(d) , as modified by paragraph (b) of this section, the pre-transaction deficit of foreign corporation A will not hover. Accordingly, foreign surviving corporation has the following post-1986 undistributed earnings and post-1986 foreign income taxes immediately after the foreign section 381 transaction:
Separate category E&P Foreign taxes
Passive (1,000u) $5
General 200u 200
(800u) 205

Code of Federal Regulations

Example 2. (i) Facts. (A) Foreign corporations B, C and D are and always have been wholly owned subsidiaries of USP, a domestic corporation. Foreign corporation B was incorporated in 2000 and foreign corporations C and D were incorporated in 2001. Foreign corporation B does not own any significant property and has no earnings and profits or foreign income taxes accounts. Both foreign corporations C and D have always had a calendar taxable year. Foreign corporations C and D (and all of their respective qualified business units as defined in section 989) maintain a “u” functional currency. On December 31, 2006, foreign corporations C and D have the following post-1986 undistributed earnings and post-1986 foreign income taxes:
Code of Federal Regulations 395
E&P Foreign taxes
Foreign corporation C Separate Category:
Passive (900u) $50
General (200u) 100
(1100u) 150
Foreign corporation D Separate Category:
Passive 1200u 400
General 400u 100
1600u 500
(B) On January 1, 2007, USP foreign corporations C and D merge into foreign corporation B in a reorganization described in section 368(a)(1)(A). (ii) Result. Although the merger is a foreign section 381 transaction involving a foreign corporation with no property or tax attributes, paragraph (b) of this section does not apply because more than one foreign corporation with significant tax attributes is involved in the foreign section 381 transaction. Accordingly, under § 1.367(b)-7(d) , foreign surviving corporation B has the following post-1986 undistributed earnings and post-1986 foreign income taxes immediately after the foreign section 381 transaction:
Separate Category Earnings & profits Foreign taxes
Positive E&P Hovering deficit Foreign taxes available Foreign taxes associated with hovering deficit
General 1200u (900u) $400 $50
Passive 400u (200u) 100 100
1600u (1100u) 500 150
(e) Effective date. This section shall apply to section 367(b) transactions that occur on or after November 6, 2006.

Code of Federal Regulations

[T.D. 9273, 71 FR 44913, Aug. 8, 2006]
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