New 10/15/04
[Code Sec. 7701]
Treasury Department: News release: Entity classification: Check-the-box-rules: Entities disallowed. –The Treasury Department and the IRS have issued guidance on the classification of certain European business entities for U.S. tax purposes. Notice 2004-68 updates the list of entities that are classified as “per se” corporations for U.S. tax purposes to include Societas Europaea (SE), a new type of public limited liability company in the European Union, as well as public limited liability companies formed under the laws of Estonia, Latvia, Liechtenstein, Lithuania and Slovenia. Back reference: ¶43,084.11.
The Treasury Department and the Internal Revenue Service issued guidance on the classification of certain European business entities for U.S. tax purposes.
In general, the status of a business entity for tax purposes – for example, as a corporation or as another type of entity such as a partnership – depends on its form of organization. Regulations provide that entities that take particular forms in their country of organization are always treated as corporations for U.S. tax purposes.
Notice 2004-68 supplements this list of “per se” corporations to reflect recent developments in Europe. First, it provides that the Societas Europaea, which is a new type of entity in the European Union, will be treated as a corporation for U.S. tax purposes. Second, the notice provides that public limited liability companies under the laws of Estonia, Latvia, Liechtenstein, Lithuania, and Slovenia will also generally be treated as corporations for U.S. tax purposes.
Entity classification: Check-the-box-rules: Entities disallowed
Notice 2004-68, I.R.B. 2004-43, October 7, 2004.
[ Code Sec. 7701]
Entity classification: Check-the-box-rules: Entities disallowed. —
The IRS will issue temporary and proposed regulations that modify Reg. § 301.7701-2(b)(8) to include the Societas Europaea (SE), which functions as a public limited liability company, as well as the Estonian Aktsiaselts, Latvian Akciju Sabiedriba, Lithuanian Akcine Bendroves, Slovenian Delniska Druzba, and Liechtenstein Aktiengesellschaft on the list of per se corporations. The temporary and proposed regulations will apply to the listed entities formed on or after October 8, 2004. Additionally, they will apply to entities other than SEs formed before that date upon a subsequent 50 percent or greater change of ownership. Back reference: ¶43,084.11.
This notice announces that Treasury and the Internal Revenue Service (the Service) will amend § 301.7701-2(b)(8) of the Procedure and Administration Regulations to include certain foreign entities on the list of entities always treated as corporations under section 7701 of the Internal Revenue Code.
BACKGROUND
The Service and Treasury issued final regulations concerning the classification of entities under section 7701 on December 18, 1996 (final regulations). See generally TD 8697 (1997-1 C.B. 215) and § § 301.7701-1 through 3. Under the final regulations, a business entity that is not specifically classified as a corporation is an eligible entity that can elect its classification for federal tax purposes under certain circumstances. However, § 301.7701-2(b)(8) provides a list of certain foreign business entities that are always classified as corporations for federal tax purposes (the per se corporation list). These foreign business entities are generally referred to as per se corporations.
On October 8, 2001, the Council of the European Union adopted Council Regulation 2157/2001 2001 O.J. (L 294) (the EU Regulation) to provide for a new business entity, the European public limited liability company (Societas Europaea or SE). The EU Regulation will enter into force on October 8, 2004, and will have legal effect in all the Member States of the European Economic Area (which includes all Member States of the European Union plus Norway, Iceland, and Liechtenstein). An SE must have a registered office in one of the Member States.
The SE is a public limited liability company. The EU Regulation provides general rules that govern the formation and operation of an SE, and supplements those rules for specified issues and issues it does not otherwise address by reference to the laws with respect to public limited liability companies for the country in which the SE has its registered office. Most of the countries in which an SE can have its registered office have a business entity that constitutes a public limited liability company and that currently is on the per se corporation list. However, an SE can have its registered office in the following countries that have a business entity that is a public limited liability company but that is not yet on the per se corporation list: Estonia, Latvia, Lithuania, Slovenia, and Liechtenstein.
DISCUSSION
The Service and Treasury have concluded that an SE is properly classified as a per se corporation because it will function as a public limited liability company. The Service and Treasury will issue temporary and proposed regulations that will modify § 301.7701-2(b)(8) to include the SE on the per se corporation list. Further, the temporary and proposed regulations will modify § 301.7701-2(b)(8) to include as per se corporations the Estonian Aktsiaselts, Latvian Akciju Sabiedriba, Lithuanian Akcine Bendroves, Slovenian Delniska Druzba, and Liechtenstein Aktiengesellschaft. These entities are the public limited liability companies in their respective countries.
The status of an SE may be relevant to the application of various federal income tax provisions, such as the subpart F same-country exception under section 954(c)(3). Treasury and the Service are considering these issues and invite comments on any additional areas in which guidance on the federal tax treatment of an SE may be warranted.
EFFECTIVE DATE
The temporary and proposed regulations to be issued adding the Estonian Aktsiaselts, Latvian Akciju Sabiedriba, Lithuanian Akcine Bendroves, Slovenian Delniska Druzba, and Liechtenstein Aktiengesellschaft to § 301.7701-2(b)(8) generally will apply to such entities formed on or after the date of this notice. However, they shall also apply to an entity formed before such date upon a 50 percent or greater change of ownership subsequent to such date. The temporary and proposed regulations to be issued adding the SE to § 301.7701-2(b)(8) will apply to entities formed on or after October 8, 2004.
DRAFTING INFORMATION
The principal author of this notice is Ronald M. Gootzeit of the Office of Associate Chief Counsel (International). For further information regarding this notice contact Ronald M. Gootzeit at (202) 622-3860 (not a toll-free call).