Adding shares to a deal does not necessarily enlarge the denominator used in its inversion ownership calculation. The IRS and Treasury's January 18 stock-ownership section generally removes disqualified stock from that denominator. The analytical question is therefore what the shares were exchanged for and whether the rule's conditions cover the transfer, not simply how many shares were issued. [2017-00643][2016-07300]

One limit is explicitly economic. Stock within the specified disqualification categories is disqualified only to the extent its exchange increases the foreign acquirer's asset fair value or decreases liabilities. The test examines that exchange without regard to other related exchanges or transactions. A net-asset increase is a limiting condition, not sufficient proof that every capital contribution produces disqualified shares. [2017-00643][2016-07300]

The exception creates another conditional boundary. The specified ownership percentage must fall below five by vote and value before designated exclusions, and each former domestic owner must separately fall below five percent in each expanded affiliated group member, by vote and value under attribution rules. A principal avoidance purpose can remove that exception. No single percentage describes all of those constraints. [2017-00643][2016-07300]

April 2016 temporary definitions determine the group at completion, which includes the acquisition and all related transactions; the January section expressly uses them. Read together, these provisions explain why transaction structure matters to the calculation. They do not establish how firms responded, whether a deal qualified, or whether an investor gained. The mechanism is evidence; a forecast of market response would be a separate proposition. [2017-00643][2016-07300]

Source documents

  1. Guidance for Determining Stock Ownership; Rules Regarding Inversions and Related Transactionshttps://www.govinfo.gov/content/pkg/FR-2017-01-18/html/2017-00643.htm
  2. Inversions and Related Transactionshttps://www.govinfo.gov/content/pkg/FR-2016-04-08/html/2016-07300.htm