Entity migration: from headquarter relocations to business restructurings

Daniel Bolwerk
Loyens & Loeff, Amsterdam
daniel.bolwerk@loyensloeff.com

Report on a session at the 17th IBA/ABA US and Latin America Tax Practice Trends Conference in Miami

Thursday 19 June 2025

Moderators
Renata Emery Tozzini Freire, São Paulo
Alfonso Alvarez Pallete A&M Tax, Miami

Panellists
Juan Camilo De Bedout Posse Herrera Ruiz, Bogotá
Fabiola Díaz Prado DSD Legal, Mexico City
Randall Madriz Aguilar Castillo Love, San José
Luciana Virgile Marval O’Farrell Maira, Buenos Aires
Javiera Suazo KPMG Chile, Santiago
Jay Singer Hogan Lovells, Washington, DC

Introduction

On 19 June a panel discussion took place on the tax aspects of reorganisations and migration opportunities in the United States and Latin America (LATAM). The session was part of the 17th Annual US and Latin America Tax Practice Trends Conference and brought together tax experts from various jurisdictions.

During the discussion, the panellists addressed key tax considerations and practical aspects of restructurings and migrations within their respective jurisdictions. They discussed national differences, tax risks and strategies for cross-border reorganisations and migration structures. This report summarises the main themes and viewpoints shared during the panel discussion.

Summary of the discussion

The panel was opened by Alfonso Alvarez Pallete, who initiated the discussion with the example of Ferrovial’s recent headquarters relocation from Spain to Amsterdam. He noted that while the move offered several tax advantages, the primary motivation was driven by business reasons. This illustrates a trend whereby commercial justification has become essential in cross-border reorganisations and migrations. Fiscal motives alone are no longer acceptable, as purely tax-driven restructurings are increasingly scrutinised by tax authorities and may be challenged or benefits disallowed. This trend was evident throughout the discussion, illustrating that cross-border restructuring and migrations must be supported by legitimate commercial justifications to ensure compliance and avoid potential tax risk.

US

US speaker Jay Singer discussed the US tax implications of corporate migrations, emphasising that such restructurings are rarely tax-free. Any transfer moving a US corporation abroad typically triggers taxation under Section 367(a) and/or Section 7874. Only if certain conditions are met will taxation remain absent.

Section 367(a) applies at the shareholder level and may require US shareholders to recognise gain if, after the transfer, the foreign acquirer is still effectively controlled by US investors. To avoid taxation, strict conditions must be met: limits on US ownership, a requirement for active business operations in the foreign entity and a valuation test ensuring the foreign acquirer is more substantial than the US entity.

Section 7874 applies at a corporate level and poses additional risks. If US shareholders of the target company end up with 60 per cent or more of shares or voting rights in the foreign acquirer, the structure may be treated as a surrogate foreign corporation. This restricts the use of tax attributes and exposes it to base erosion and anti-abuse tax (BEAT) rules. If US ownership reaches 80 per cent or more, the Internal Revenue Service (IRS) will treat the foreign acquirer as a US domestic corporation, risking double taxation.

Singer strongly advised that when structuring a US and Latin American entity under a Latin American holding company, the US entity should be transferred last. Transferring the US company first can trigger Section 7874, leading to significant tax consequences.

LATAM reorganisations

As mentioned previously, the recurring theme throughout the panel was the increasing importance of business reasons in cross-border reorganisations. Speakers across the different jurisdictions emphasised that the tax authorities in Latin America no longer accept restructurings that are driven by tax reasons, challenging these reorganisations and likely denying tax benefits applicable to those reorganisations if no business reasons are assumed.

An example of this was given by Fabiola Díaz Prado, who mentioned that the Mexican tax authorities will recharacterise transactions, increasing the tax burden, when the quantifiable economic benefit is less than the tax benefit obtained or when the economic benefit could have been achieved through a fewer number of acts than those actually carried out, in which case the resulting tax burden would have been greater.

Additionally, Argentina and Chile will strictly follow transfer pricing (TP) guidelines in order to confirm that not only business reasons underly the transaction but also that correct compensation has been awarded to the transferor of assets ensuring correct taxation during the transfer itself. When this is not done correctly, the relevant tax authorities might conclude that the business restructuring is not done for business reasons. This was the case for Costa Rica, where Randall Madriz mentioned that even when a decision has commercial backing, tax authorities remain sceptical, especially in IP-related restructurings.

Lastly, for reorganisations it is very important that the functions, assets and risks that are transferred are then actually used in the jurisdiction where they are transferred to. If a company keeps using these attributes in the previous country, the tax authorities will challenge the reorganisation and very likely deny all tax benefits gained by this reorganisation.

LATAM migration

While some of the Latin American countries allow migration of entities abroad, most have legislation and documentation requirements that make it practically impossible to effectively migrate. Díaz Prado gave an example of this for Mexico, stating that if you would like to migrate an entity out of Mexico you would have to provide documentation in advance acknowledging tax residency in the arriving country. No arriving country provides such documentation before the company has migrated, making it impossible to practically migrate.

Other countries, like Colombia, simply deny migration of entities in their corporate legislation. Due to these restrictions, Argentina is one of the limited number of LATAM countries where it is reasonably possible to migrate to another country while maintaining the same entity and simultaneously preventing possible negative tax effects. However, even for an Argentinian entity this is a challenge: Luciana Virgile mentioned that the foreign legislation where the entity is migrating to must allow the relocation process for foreign companies into its jurisdiction while not deeming them liquidated beforehand.

If maintaining legal continuity of the entity is not a priority, most jurisdictions do offer pathways to migrate businesses abroad – typically through asset transfers, spin-offs or mergers. However, with the exception of Costa Rica, such transactions are generally treated as taxable events, often triggering capital gains tax, corporate income tax or deemed sales. This significantly reduces the attractiveness of these options. For example, Mexico taxes the transfer of shares to a foreign entity at up to 35 per cent of the net gain. These tax burdens can form a barrier for entities to migrate abroad.

After the discussion on entity migration in Latin America, which highlighted the legal and practical barriers associated with cross-border migration, Alvarez Pallete closed the session by noting that, as large multinationals continue to grow in the region, business relocations will become increasingly relevant. At the same time, countries are expected to become stricter in the application of rules governing cross-border reorganisations and migrations.

Conclusion

The panel discussion explored the various ways in which cross-border migration of entities and assets is possible across the Americas, while also highlighting the practical and legal challenges involved. Although such migrations remain feasible, tax authorities are becoming increasingly vigilant in ensuring that these transactions are driven by genuine business purposes rather than tax motivations. Migrations lacking sufficient commercial justification are likely to be challenged, and the intended tax benefits may be denied. This is a risk that companies must carefully consider during the planning process.