- Final Regulations were issued under Section 367(d), addressing repatriation of intangible property previously outbounded from the United States.
- A U.S. transferor taxpayer is deemed to receive an annual royalty payment (which should be treated as such for allocation and apportionment), and subsequent transfer by a foreign corporation could result in a gain to the U.S. transferor.
- 367(d) would no longer apply for repatriated intangible property, but could result in a gain to the U.S. transferor.
The Bottom Line
On October 9, 2024, Final Regulations under § 367(d) were issued, which finalized the Proposed Regulations without any modifications to substantive provisions.
In general, §367(d) provides rules for “outbound” transfers of intangible property by a U.S. person (U.S. Transferor) to a foreign corporation that were treated as tax-free exchanges under §351 or §361. Under these rules, the U.S. Transferor is deemed to receive an annual royalty payment over the useful life of the intangible property. The deemed payment is treated as a royalty for sourcing and foreign tax credit limitation purposes.
These rules also addressed a subsequent transfer by the foreign corporation of the intangible property. This subsequent transfer could result in the U.S. Transferor recognizing gain (not loss) if the subsequent transferee is an unrelated person. If the subsequent transferee is a related person (including a U.S. person), then the deemed royalty payment would continue over the useful life of the intangible property. The deemed royalty payments could result in a double income inclusion in situations in which the subsequent transferee is a U.S. person—to alleviate this concern, the Proposed Regulations were issued.
Overall, the Final Regulations would terminate the application of §367(d) if the intangible property is repatriated to the U.S. Transferor, or a “qualified domestic person” and certain reporting requirements are met.
Action Items and Important Dates
The Final Regulations will apply to subsequent dispositions of intangible property that occur on or after the date the Final Regulations are published in the Federal Register. The Final Regulations cannot be applied retroactively.