- September 28, 2021
- Posted by: Stratford Team
- Category: Business
In transactions in which a Canadian corporation seeks to acquire a U.S. target entity for shares of the Canadian acquiror in a transaction intended to be tax-deferred for U.S. federal income tax purposes, the ability of U.S. shareholders of the U.S. target to qualify for tax-deferral may depend on the activities the Canadian acquiror conducts in Canada (or other non-US jurisdictions).
Under the general rule in Code Section 367(a), if a U.S. person transfers stock in a U.S. corporation to a Canadian corporation (as characterized for U.S. federal income tax purposes), such transfer will not be characterized as a tax-deferred exchange for U.S. federal income tax purposes (even if the transaction would otherwise qualify as a tax-deferred exchange).
There are a number of exceptions (and exceptions to the exceptions) to the general rule contained in Code Section 367(a). One of the most important exceptions is the “Active Trade or Business Exception”,…