Rev. Proc. 64-50

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to clarify the definition of the term `class of stock' as set forth in paragraph (c)(3) of section 147.7-2 of the Temporary Regulations under the Interest Equalization Tax Act, Treasury Decision 6756, page 906, this Bulletin, and to supplement the ruling procedure prescribed by paragraph (d) of such section.

SEC. 2. BACKGROUND.

Section 4920(a)(8) of the Internal Revenue Code of 1954, as added by the Interest Equalization Tax Act, Public Law 88-563, page 615, this Bulletin, provides that a foreign corporation (other than a corporation registered under the Investment Company Act of 1940) shall not be considered a foreign issuer with respect to any class of its stocks if-

(1) As of the corporation's latest record date before July 19, 1963, more than 65 percent of such class of stock was held of record by United States persons, or

(2) The class of stock is traded on registered national securities exchanges, had its principal market on such exchanges in 1962, and, as of the corporation's latest record date before July 19, 1963, more than 50 percent of such class of stock was held of record by United States persons. Thus, if a class of stock meets the requirements of subparagraph (1) or (2) of this paragraph, a United States person may acquire a share of such stock free of the interest equalization tax even though the transaction would otherwise be subject to the tax.

Paragraph (c)(3) of section 147.7-2 defines the term `class of stock' to mean all shares of stock issued by a corporation which are identical with respect to the rights and interest which such shares represent in the control, profits, and assets of the corporation.

The exemptions provided by section 4920(a)(8) of the Code were intended to facilitate trading in classes of stock of foreign corporations outstanding as of July 19, 1963, only if the specified conditions, with respect to such classes, were satisfied as of the corporation's latest record date before July 19, 1963. Therefore, the term `class of stock' as used in section 4920(a)(8) of the Code and paragraph (c)(3) of section 147.7-2 of the regulations means only those shares of a class which were issued and outstanding as of the corporation's such latest record date.

However, it has been brought to the attention of the Internal Revenue Service that this limitation on the scope of the term `class of stock' has not been generally recognized. Accordingly, some foreign corporations have issued, after such corporations' latest record dates before July 19, 1963, additional shares of stock which they believed would qualify under section 4920(a)(8) of the Code, and some taxpayers have acquired such additional shares.

SEC. 3. CONCLUSION.

In order to avoid undue hardship, the following rules shall apply in determining whether foreign stock issued shall be treated as qualifying under section 4920(a)(8) of the Code:

(a) In general. - For purposes of paragraph (c)(3) of section 147.7-2, the term `class of stock' of a foreign corporation shall include only the following-

(1) Shares of a class which were issued and outstanding as of such corporation's latest record date before July 19, 1963;

(2) Shares identical to the shares of such class issued or sold after such record date but on or before November 10, 1964;

(3) Shares identical to the shares of such class issued after November 10, 1964, pursuant to a written commitment made by such corporation on or before such date;

(4) Shares identical to the shares of such class issued after November 10, 1964, to a shareholder with respect to or in exchange solely for the shares of such class; and

(5) Shares identical to the shares of such class held by such corporation as treasury stock or its equivalent as of November 10, 1964.

For purposes of subparagraph (3) of this paragraph, shares issued pursuant to a written commitment may include shares issued upon exercise of a warrant, upon conversion of a convertible bond or share of preferred stock, or in accordance with the terms of a stock option, stock purchase, or similar plan.

(b) Ruling procedure. - Any person desiring to establish that one or more classes of stock meets the requirements of section 4920(a)(8) of the Code and section 147.7-2 of the regulations may apply for a ruling to that effect. The ruling procedure is set forth in paragraph (d) of section 147.7-2. In addition to supplying the information required by such paragraph, persons requesting such a ruling shall also furnish the following-

(1) A statement that no shares identical to the shares of the class of stock with respect to which a ruling is requested have been issued after November 10, 1964 (other than shares described in paragraph (a)(3) or (4) of this section);

(2) The number of shares of such class (including treasury stock or its equivalent) outstanding on November 10, 1964;

(3) The number of shares of such class which on November 10, 1964, were subject to be issued by the corporation pursuant to a written commitment referred to in paragraph (a)(3) of this section;

(4) A description of each such written commitment; and

(5) An agreement, executed by a principal officer of the foreign corporation on behalf of the corporation, to inform the Commissioner of Internal Revenue prior to the issuance after November 10, 1964, of any shares identical to the shares of the class of stock with respect to which the ruling is requested (other than those issued pursuant to a commitment described in subparagraph (4) of this paragraph). Such information shall be filed with the Commissioner of Internal Revenue, Attention: T:R:C:3, Washington, D.C., 20224.

(c) Effect of ruling. - A ruling issued in accordance with paragraph (d) of section 147.7-2 as supplemented by this Revenue Procedure, with respect to a class of stock, will be effective until revoked. Shares of such class of stock or shares identical to the shares of such class which are purchased before the close of the business day following the day on which a revocation of such ruling is published (in accordance with section 4 of this Revenue Procedure) will be conclusively presumed to be shares of a class of stock described in section 4920(a)(8) of the Code unless such shares were acquired directly from the foreign corporation and were not shares acquired-

(1) Before November 10, 1964, or

(2) After such date, but-

(i) In a transaction described in paragraph (a)(4) of this section;

(ii) Pursuant to a commitment described in paragraph (b)(4) of this section; or

(iii) As a result of a transfer of shares described in paragraph (a)(5) of this section.

Shares which are purchased after the close of the business day following the day of such publication shall be exempt under section 4920(a)(8) of the Code only if the acquiring person can demonstrate that such shares were issued on or before November 10, 1964, or after such date but only if such shares are described in paragraph (a)(3) or (4) of this section.

(d) Circumstances of revocation. - A ruling issued in accordance with paragraph (d) of section 147.7-2 as supplemented by this Revenue Procedure with respect to a class of stock of a foreign corporation may be revoked if-

(1) Such corporation fails to furnish the appropriate information in accordance with the agreement referred to in paragraph (b)(5) of this section, or

(2) Such corporation issues shares identical to the shares of such class after November 10, 1964 (other than either in a transaction described in paragraph (a)(4) of this section or pursuant to a commitment described in paragraph (b)(4) of this section).

(e) Interim rule. -If-

(1) A ruling has been requested with respect to a class of stock in accordance with paragraph (d) and (e) of section 147.7-2 on or before November 2, 1964, and

(2) The additional information required under paragraph (b) of this section is furnished on or before December 10, 1964, transactions in shares of such class or identical shares occurring during the period such request (or, if the ruling referred to in subparagraph (1) of this paragraph has been granted, such additional request) is pending shall not be subject to tax.

SEC. 4. PUBLICATION.

From time to time a list will be published of those classes of stock with respect to which rulings have been granted pursuant to paragraph (d) of section 147.7-2 as supplemented by this Revenue Procedure. Revocation of any such ruling will also be made public immediately through notification given to the stock exchanges on which the shares are traded, or to the National Association of Securities Dealers, in the case of an unlisted corporation, together with a general public announcement.

¹ Also released as Technical Information Release 654, dated Nov. 10, 1964.