Unintended consequences? The impact of IRS notice 2014-52 on acquisitions of U.S. companies by non U.S. insurers and reinsurers

In Notice 2014-52 the U.S. Internal Revenue Service (“IRS”) described several additions that will be made to the Treasury regulations under section 78742 to curb transactions that are commonly called “inversions.” According to Notice 2014-52, one of those additions will target the use of foreign3 “cash boxes” to complete inversions that otherwise fall outside the purview of section 7874 and, in so doing, will equate foreign insurers and reinsurers with cash boxes by offering only a limited exclusion from the cash box analysis for the assets that such companies hold in the ordinary conduct of their insurance and reinsurance businesses. Conversely, Notice 2014-52 offers foreign banks and finance companies much broader exclusions from the cash box analysis for the assets that such companies hold in the ordinary conduct of their banking and financing businesses. Unfortunately, the policy justification underpinning the disparate treatment afforded foreign insurers and reinsurers is not apparent on the face of Notice 2014-52, and, in the absence of further clarification from the U.S. Treasury Department (“Treasury”) and the IRS, that treatment has had, and likely will continue to have, an unwarranted chilling effect on acquisitions of domestic corporations (whether insurance companies or otherwise) by foreign insurers and reinsurers.