1Initial Structure100%100%100%Corp Y(Country Q)(Parent)ZShareholdersVShareholdersCorp R(Country Q)(New Co)(Acquiror)Corp Z(Country Q)(Target 1)Corp V(Country Q)(Target 2)2Foreign Amalgamation100%Corp Y StockCorp Y StockSurrenderCorp ZStockSurrenderCorp VStockAmalgamationAll Assetsand LiabilitiesAll Assetsand LiabilitiesCorp Y(Country Q)(Parent)ZShareholdersVShareholdersCorp R(Country Q)(New Co)(Acquiror)Corp Z(Country Q)(Target 1)Corp V(Country Q)(Target 2)3Ending PointZShareholdersVShareholdersCorp Y(Country Q)(Parent)Corp R(Country Q)(New Co)(Acquiror)Corp Z & Corp VAssets and LiabilitiesLegendOwnership / structural holdingTransfer of stock / cash / assetsMerger step

Foreign amalgamation Explained

Corp Y owns 100% of newly formed Corp R (Corp R is the acquiring “New Co”). The Z shareholders own 100% of Corp Z (Target 1) and the V shareholders own 100% of Corp V (Target 2). All four operating entities are organized under the laws of Country Q and are classified as corporations for U.S. federal income tax purposes.

Pursuant to the statutes of Country Q, the following events occur simultaneously: all of the assets and liabilities of Corp Z and Corp V become the assets and liabilities of Corp R; Corp Z’s and Corp V’s separate legal existences cease for all purposes; and the Z and V shareholders exchange their Corp Z and Corp V stock, respectively, for stock of Corp Y. Because Corp Y issues its own (parent) stock as the consideration, the diagram maps that stock issuance and the shareholders’ surrender of target stock as value transfers, and the combination of assets and liabilities into Corp R as the merger step.

Because Corp Y is in control of Corp R immediately after the transaction and the Z and V shareholders are treated as receiving stock of a corporation (Corp Y) that is in control of Corp R — the acquiring corporation for purposes of § 368(a)(2)(D) — the amalgamation qualifies as a statutory merger or consolidation of each of Corp Z and Corp V into Corp R under § 368(a)(1)(A) by reason of § 368(a)(2)(D). In the ending structure the Z and V shareholders own Corp Y, Corp Y owns Corp R, and Corp R holds the combined Corp Z and Corp V assets and liabilities.

Key Takeaways

Amalgamation as a statutory merger

A foreign amalgamation qualifies under Treas. Reg. § 1.368-2(b)(1)(ii) when all of the combining entities’ assets and liabilities pass to a single transferee unit and each combining entity ceases its separate legal existence — even though no U.S.-style “merger” document is signed.

Parent stock is the currency

The Z and V shareholders surrender their Corp Z and Corp V stock and receive stock of Corp Y, the parent that controls the acquiring New Co (Corp R), rather than stock of Corp R itself.

Control turns it triangular

Because Corp Y controls Corp R and the target shareholders receive Corp Y stock, the deal is a forward triangular reorganization under § 368(a)(1)(A) by reason of § 368(a)(2)(D).

New Co survives with combined assets

Corp R is created in the transaction and, immediately afterward, is wholly owned by Corp Y and holds all of the assets and liabilities of both Corp Z and Corp V.

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