Foreign corporations

# (a) Transfers of property from the United States

(1) General rule If, in connection with any exchange described in section 332, 351, 354, 356, or 361, a United States person transfers property to a foreign corporation, such foreign corporation shall not, for purposes of determining the extent to which gain shall be recognized on such transfer, be considered to be a corporation.

(2) Exception for certain stock or securities Except to the extent provided in regulations, paragraph (1) shall not apply to the transfer of stock or securities of a foreign corporation which is a party to the exchange or a party to the reorganization.

(3) Special rule for transfer of partnership interests Except as provided in regulations prescribed by the Secretary, a transfer by a United States person of an interest in a partnership to a foreign corporation in an exchange described in paragraph (1) shall, for purposes of this subsection, be treated as a transfer to such corporation of such person’s pro rata share of the assets of the partnership.

(4) Paragraph (2) not to apply to certain section 361 transactions Paragraph (2) shall not apply in the case of an exchange described in subsection (a) or (b) of section 361. Subject to such basis adjustments and such other conditions as shall be provided in regulations, the preceding sentence shall not apply if the transferor corporation is controlled (within the meaning of section 368(c)) by 5 or fewer domestic corporations. For purposes of the preceding sentence, all members of the same affiliated group (within the meaning of section 1504) shall be treated as 1 corporation.

(5) Secretary may exempt certain transactions from application of this subsection Paragraph (1) shall not apply to the transfer of any property which the Secretary, in order to carry out the purposes of this subsection, designates by regulation.

# (b) Other transfers

(1) Effect of section to be determined under regulations In the case of any exchange described in section 332, 351, 354, 355, 356, or 361 in connection with which there is no transfer of property described in subsection (a)(1), a foreign corporation shall be considered to be a corporation except to the extent provided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of Federal income taxes. (2) Regulations relating to sale or exchange of stock in foreign corporations The regulations prescribed pursuant to paragraph (1) shall include (but shall not be limited to) regulations dealing with the sale or exchange of stock or securities in a foreign corporation by a United States person, including regulations providing— (A) the circumstances under which— (i) gain shall be recognized currently, or amounts included in gross income currently as a dividend, or both, or (ii) gain or other amounts may be deferred for inclusion in the gross income of a shareholder (or his successor in interest) at a later date, and (B) the extent to which adjustments shall be made to earnings and profits, basis of stock or securities, and basis of assets.

# (c) Transactions to be treated as exchanges

(1) Section 355 distribution For purposes of this section, any distribution described in section 355 (or so much of section 356 as relates to section 355) shall be treated as an exchange whether or not it is an exchange. (2) Contribution of capital to controlled corporations For purposes of this chapter, any transfer of property to a foreign corporation as a contribution to the capital of such corporation by one or more persons who, immediately after the transfer, own (within the meaning of section 318) stock possessing at least 80 percent of the total combined voting power of all classes of stock of such corporation entitled to vote shall be treated as an exchange of such property for stock of the foreign corporation equal in value to the fair market value of the property transferred.

# (d) Special rules relating to transfers of intangibles

(1) In general Except as provided in regulations prescribed by the Secretary, if a United States person transfers any intangible property to a foreign corporation in an exchange described in section 351 or 361— (A) subsection (a) shall not apply to the transfer of such property, and (B) the provisions of this subsection shall apply to such transfer.

(2) Transfer of intangibles treated as transfer pursuant to sale of contingent payments (A) In general If paragraph (1) applies to any transfer, the United States person transferring such property shall be treated as— (i) having sold such property in exchange for payments which are contingent upon the productivity, use, or disposition of such property, and (ii) receiving amounts which reasonably reflect the amounts which would have been received— (I) annually in the form of such payments over the useful life of such property, or (II) in the case of a disposition following such transfer (whether direct or indirect), at the time of the disposition. The amounts taken into account under clause (ii) shall be commensurate with the income attributable to the intangible.

(B) Effect on earnings and profits For purposes of this chapter, the earnings and profits of a foreign corporation to which the intangible property was transferred shall be reduced by the amount required to be included in the income of the transferor of the intangible property under subparagraph (A)(ii).

(C) Amounts received treated as ordinary income For purposes of this chapter, any amount included in gross income by reason of this subsection shall be treated as ordinary income. For purposes of applying section 904(d), any such amount shall be treated in the same manner as if such amount were a royalty.

(D) Regulatory authority For purposes of the last sentence of subparagraph (A), the Secretary shall require— (i) the valuation of transfers of intangible property, including intangible property transferred with other property or services, on an aggregate basis, or (ii) the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such transfers.

(3) Regulations relating to transfers of intangibles to partnerships The Secretary may provide by regulations that the rules of paragraph (2) also apply to the transfer of intangible property by a United States person to a partnership in circumstances consistent with the purposes of this subsection.

(4) Intangible property For purposes of this subsection, the term “intangible property” means any— (A) patent, invention, formula, process, design, pattern, or know-how, (B) copyright, literary, musical, or artistic composition, (C) trademark, trade name, or brand name, (D) franchise, license, or contract, (E) method, program, system, procedure, campaign, survey, study, forecast, estimate, customer list, or technical data, (F) goodwill, going concern value, or workforce in place (including its composition and terms and conditions (contractual or otherwise) of its employment), or (G) other item the value or potential value of which is not attributable to tangible property or the services of any individual.

# (e) Treatment of distributions described in section 355 or liquidations under section 332

(1) Distributions described in section 355 In the case of any distribution described in section 355 (or so much of section 356 as relates to section 355) by a domestic corporation to a person who is not a United States person, to the extent provided in regulations, gain shall be recognized under principles similar to the principles of this section. (2) Liquidations under section 332 In the case of any liquidation to which section 332 applies, except as provided in regulations, subsections (a) and (b)(1) of section 337 shall not apply where the 80-percent distributee (as defined in section 337(c)) is a foreign corporation.

# (f) Other transfers

To the extent provided in regulations, if a United States person transfers property to a foreign corporation as paid-in surplus or as a contribution to capital (in a transaction not otherwise described in this section), such transfer shall be treated as a sale or exchange for an amount equal to the fair market value of the property transferred, and the transferor shall recognize as gain the excess of— (1) the fair market value of the property so transferred, over (2) the adjusted basis (for purposes of determining gain) of such property in the hands of the transferor.