[Federal Register Volume 70, Number 71 (Thursday, April 14, 2005)]
[Rules and Regulations]
[Pages 19697-19698]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-6716]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9197]
RIN 1545-BD78


Classification of Certain Foreign Entities

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains temporary and final regulations 
relating to certain business entities included on the list of foreign 
business entities that are always classified as corporations for 
Federal tax purposes. The text of the temporary regulations also serves 
as the text of the proposed regulations set forth in the notice of 
proposed rulemaking on this subject in the Proposed Rules section in 
this issue of the Federal Register.

DATES: Effective Date: These regulations are effective on October 7, 
2004.
    Applicability Date: For the dates of applicability of these 
regulations, see Sec.  301.7701-2T(e).

FOR FURTHER INFORMATION CONTACT: Ronald M. Gootzeit, (202) 622-3860 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    The IRS and Treasury Department issued final regulations concerning 
the classification of entities under section 7701 of the Internal 
Revenue Code (Code) on December 18, 1996 (final regulations). See 
generally TD 8697 (1997-1 C.B. 215) and Sec. Sec.  301.7701-1 through 
301.7701-3. Under the final regulations, a business entity that is not 
specifically classified as a corporation is an eligible entity that can 
elect its classification for Federal tax purposes under certain 
circumstances. However, Sec.  301.7701-2(b)(8) provides a list of 
certain foreign business entities that are always classified as 
corporations for Federal tax purposes (the per se corporation list). 
These foreign business entities are generally referred to as per se 
corporations.
    On October 8, 2001, the Council of the European Union adopted 
Council Regulation 2157/2001 2001 O.J. (L 294) (the EU Regulation) to 
provide for a new business entity, the European public limited 
liability company (Societas Europaea or SE). The EU Regulation entered 
into force on October 8, 2004, and has effect in all the Member States 
of the European Economic Area (which includes all Member States of the 
European Union plus Norway, Iceland, and Liechtenstein). An SE must 
have a registered office in one of the Member States.
    The SE is a public limited liability company. The EU Regulation 
provides general rules that govern the formation and operation of an SE 
and supplements those rules for specified issues and issues it does not 
address by reference to the laws with respect to public limited 
liability companies for the country in which the SE has its registered 
office. Most of the countries in which an SE can have its registered 
office have a business entity that constitutes a public limited 
liability company and that currently is on the per se corporation list. 
However, an SE can have its registered office in the following 
countries that have a business entity that is a public limited 
liability company but that is not yet on the per se corporation list: 
Estonia, Latvia, Lithuania, Slovenia, and Liechtenstein.

Explanation of Provisions

    In Notice 2004-68 (2004-43 IRB 706), the IRS and Treasury stated 
that the SE is properly classified as a per se corporation because it 
will function as a public limited liability company. The Notice also 
stated that the IRS and Treasury will issue temporary and proposed 
regulations that will modify Sec.  301.7701-2(b)(8) to include the SE 
on the per se corporation list. The Notice further stated that the 
temporary and proposed regulations will modify Sec.  301.7701-2(b)(8) 
to include as per se corporations the Estonian Aktsiaselts, Latvian 
Akciju Sabiedriba, Lithuanian Akcine Bendroves, Slovenian Delniska 
Druzba, and Liechtenstein Aktiengesellschaft. These entities are the 
public limited liability companies in their respective countries. The 
temporary regulations in this document

[[Page 19698]]

make these modifications to Sec.  301.7701-2(b)(8). In addition, in 
accordance with Notice 2004-68, these regulations will be effective for 
the Estonian, Latvian, Liechtenstein, Lithuanian, and Slovenian 
entities formed on or after October 7, 2004, and for the European 
Economic Area entity formed on or after October 8, 2004. See also 
section 7805(b)(1)(C).
    The status of an SE may be relevant to the application of various 
Federal income tax provisions, such as the subpart F same-country 
exception under section 954(c)(3). Treasury and the IRS are considering 
these issues and invite comments on any additional areas in which 
guidance on the Federal tax treatment of an SE may be warranted.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. As a result of the 
issuance of Notice 2004-68, good cause is found for dispensing with 
prior notice and comment pursuant to 5 U.S.C. 553(b). For the 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), 
refer to the Special Analyses section of the preamble to the notice of 
proposed rulemaking published in the proposed rules section in this 
issue of the Federal Register. Pursuant to section 7805(f) of the Code, 
these temporary regulations will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on their 
impact.

Drafting Information

    The principal author of these regulations is Ronald M. Gootzeit of 
the Office of Associate Chief Counsel (International). However, other 
personnel from the IRS and Treasury Department participated in their 
development.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. In Sec.  301.7701-2, paragraph (b)(8)(vi) is added to read as 
follows:


Sec.  301.7701-2  Business entities; definitions.

* * * * *
    (b) * * *
    (8) * * *
    (vi) Certain European entities. [Reserved]. For further guidance, 
see Sec.  301.7701-2T.
* * * * *

0
Par. 3. Section 301.7701-2T is amended by adding paragraphs (b)(8)(vi) 
and (e) to read as follows:


Sec.  301.7701-2T  Business entities; definitions (temporary).

    (a) through (b)(8)(v) [Reserved]. For further guidance, see Sec.  
301.7701-2(a) through (b)(8)(v).
    (b)(8)(vi) Certain European entities. The following business 
entities formed in the following jurisdictions:
    Estonia, Aktsiaselts;
    European Economic Area/European Union, Societas Europaea;
    Latvia, Akciju Sabiedriba;
    Liechtenstein, Aktiengesellschaft;
    Lithuania, Akcine Bendroves;
    Slovenia, Delniska Druzba.
    (c) and (d) [Reserved]. For further guidance, see Sec.  301.7701-
2(c) and (d).
    (e) Effective dates.
    (1) and (2) [Reserved]. For further guidance, see Sec.  301.7701-
2(e)(1) and (2).
    (3) The reference to the Estonian, Latvian, Liechtenstein, 
Lithuanian, and Slovenian entities in paragraph (b)(8)(vi) of this 
section applies to such entities formed on or after October 7, 2004, 
and to any such entity formed before such date from the date any person 
or persons, who were not owners of the entity as of October 7, 2004, 
own in the aggregate a 50 percent or greater interest in the entity. 
The reference to the European Economic Area/European Union entity in 
paragraph (b)(8)(vi) of this section applies to such entities formed on 
or after October 8, 2004.
* * * * *

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: March 28, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 05-6716 Filed 4-13-05; 8:45 am]
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