F-reorganisations: Providing opportunities for foreign and US businesses

The Trump administration is adamant on incentivising investment in the United States, and the US market is difficult to avoid due to its boundless opportunities. In the world of international business, entering a foreign market can appear to be a daunting task. Different legal frameworks, tax regimes, and corporate structures can make it difficult to align operations or facilitate transactions across borders. One highly effective tool for US companies seeking to enhance their flexibility in cross-border deals – or for foreign companies seeking to “domesticate” in the US – is the F-reorganisation under Section 368(a)(1)(F) of the Internal Revenue Code.

An F-reorganisation offers a highly effective way for foreign corporations to transition into US corporations while avoiding significant tax liabilities. This process, known as a “domestication transaction”, is particularly valuable when a company wants to move appreciated assets, such as intellectual property, real estate, or other valuable holdings, into a US entity without triggering taxes on built-in gains. By meeting the specific conditions of an F-reorganisation, businesses can transform into US corporations in a tax-efficient manner. This approach is often pursued to better manage assets in the US, facilitate future growth opportunities, or streamline the process of raising capital in the US market.

What is an F-reorganisation?

An F-reorganisation occurs when there is “[a] corporate reorganisation…by virtue of being a mere change of identity, form, or place of organisation of one corporation”. 

This type of restructuring is unique because it allows a corporation to transform its legal form without triggering taxable events. Unlike other reorganisations that may involve multiple entities or significant changes to ownership and operations, an F-reorganisation is typically a single-entity transaction where the business remains fundamentally the same with the historical employer identification number (EIN) traveling from OldCo to NewCo, but the entity type converts and the jurisdiction changes. 

This is essential for contracting purposes when the business name must carry forward and the EIN is tied to contract payments. Even under the most rigorous government procurement contracting requirements, the precision and timing of the F-reorganisation vehicle allows foreign and US businesses the certainty required to capitalise on market opportunities. The most critical aspect of effectuating an F-reorganisation centres upon timing within the process and specific filings throughout the timeline. 

Why does this matter for cross-border M&A transactions?

The lost-in-translation aspects of cross-border transactions make it attractive to use an F-reorganisation as a translator.  A US company can strategically restructure itself to better align with international corporate and tax laws without disrupting its existing business operations, and a foreign entity can utilise the F-reorganisation to domesticate itself. 

Some of the core benefits of an F-reorganisation include: 

• Facilitating cross-border transactions; 
• Tax efficiency; 
• Streamlining foreign investment into the US; and 
• Reducing legal and regulatory complexity.

Conclusion

As we enter a period of uncertainty that is causing anxiety for the C-suite, creative corporate structuring enables US companies seeking to bridge the corporate language barrier with foreign businesses. They should consider the potential of an F-reorganisation to enhance their flexibility in cross-border transactions. Whether for tax efficiency, regulatory alignment, or facilitating foreign investment, this simple yet powerful restructuring tool can be a game-changer in international business dealings.

If your company is considering an international expansion or transaction, working with legal and tax professionals experienced in F-reorganisations can ensure a smooth and compliant transition. By speaking the right corporate language, your business can unlock new opportunities on the global stage. 

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Clay Brewer focuses on advising both established companies and startups on a wide range of matters such as business planning, capital raising, corporate structuring, regulatory risk, mergers and acquisitions, and cross-border transactions.

Jon Field is Co-Leader of Thompson Burton’s Corporate Team practicing in the areas of business organizations, corporate governance, licensing, mergers and acquisitions, securities, and all aspects of development and finance.