The United States Tax Court’s ruling against the IRS in an international tax case may have set a significant precedent for firms selling foreign subsidiaries, it has been reported.
The case in question centers on New York-based manufacturer Dover Corp’s 1997 sale of UK firm Hammond & Champness, which was 100% owned by Dover UK Holdings.
Through a reclassification of the transaction from a sale of stock into a sale of the subsidiary’s assets in 1999, the firm argued that the sale did not fall under ‘Subpart F’ of the international tax code, meaning it could defer payment of income tax on the $25 million gained from the sale.
The decision by the Tax Court on May 5 agreeing with Dover’s stance resurrected a 1975 IRS ruling, and tax practitioners now believe the judgement could set a precedent for other firms.
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