If an entity organized or formed in the U.S. changes its place of incorporation (an inversion) and does not meet certain business requirements in the new country of incorporation the new foreign entity will continue to be considered a U.S. resident. A U.S. entity subject to these anti-inversion rules will continue to be subject to U.S. tax on its worldwide income as if it were still incorporated or organized in the U.S. The anti-inversion rules will apply if:

the foreign corporation completes after 4 March 2003, the direct or indirect acquisition of substantially all the properties held directly or indirectly by a U.S. corporation
the U.S. shareholders obtain 80% (or 60% in some cases) or more of the foreign corporation's stock (by vote or value) by reason of holding their U.S. shares, and
the foreign corporation and corporations connected to it by a 50% chain of ownership (the "expanded affiliated group") don't have substantial business activities in the foreign corporation's country of incorporation or organization when compared to the total business activities of the group.

Further to the conditions above, a new anti-inversion rule was introduced in 2016 that allows the IRS to disregard foreign parent stock attributable to recent inversions or acquisitions of U.S. companies in the previous three years. This is meant to limit inversions by preventing foreign companies that acquire multiple U.S. companies in stock-based transactions from using the resulting increase in size to avoid the 80% (60%) U.S. shareholder threshold for a subsequent U.S. acquisition. In general, if there is a continuity of ownership of 80% or more following an inversion, the inverted foreign company is treated as a U.S. domestic company for tax purposes. If there is a continuity of ownership of ownership over 60% and less than 80%, the inverted company will be treated as foreign, but certain tax disadvantages apply unless a substantial activities test is met.

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