The Exit Toll: Navigating Section 367 Outbound Transfers
Under the US domestic rules, you can often move assets into a corporation tax-free. However, the moment that corporation is located outside the US, Section 367 overrides those rules. The IRS fears that taxpayers will move appreciated assets to low-tax jurisdictions to avoid US capital gains. Under Section 367(a), a transfer to a foreign corporation is generally treated as a taxable sale unless a specific exception applies. This "Outbound Toll" can devastate a US company trying to expand internationally. Our International Tax Group specializes in architecting "Gain Recognition Agreements" (GRAs) to defer these taxes.
The Active Foreign Trade or Business Exception
One of the primary escapes from the Section 367(a) toll is the "Active Foreign Trade or Business" exception. If the assets being transferred will be used in an active business outside the US, the transfer may remain tax-free.
However, "Passive Assets" (like liquid securities) and most **Intangible Property** (like patents and trademarks) are explicitly disqualified from this exception. We provide the IP-migration audits needed to determine if your global restructuring will trigger an immediate Section 367 charge. For tech companies moving development to foreign subsidiaries, we help manage the "Foreign Branch Loss Recapture" rules, ensuring that previous tax benefits claimed in the US aren\'t retroactively taxed upon the incorporation of the foreign branch.
Secondary Tolls: Section 367(b) and Inbound Transfers
While 367(a) handles assets leaving the US, Section 367(b) governs transfers between foreign corporations and migrations back into the US.
These rules focus on preventing the "cleansing" of Earnings & Profits (E&P) that have never been subject to US tax. We provide "E&P Tracking Infrastructure" for multi-jurisdictional family offices, ensuring that restructures involving Controlled Foreign Corporations (CFCs) don\'t trigger immediate dividend income. Our forensic tax team specializes in coordinating Section 367 filings with Form 5471 requirements, ensuring that your international architecture is compliant, defensible, and legally optimized for cross-border capital mobility.