Part III. — Internal Revenue Bulletin 2004-43

Classification of Certain Foreign Entities

Notice 2004–68

This notice announces that Treasury and the Internal Revenue Service (the Service) will amend § 301.7701–2(b)(8) of the Procedure and Administration Regulations to include certain foreign entities on the list of entities always treated as corporations under section 7701 of the Internal Revenue Code.

BACKGROUND

The Service and Treasury issued final regulations concerning the classification of entities under section 7701 on December 18, 1996 (final regulations). See generally T.D. 8697, 1997–1 C.B. 215, and §§ 301.7701–1 through 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, § 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 will enter into force on October 8, 2004, and will have legal 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 otherwise 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.

DISCUSSION

The Service and Treasury have concluded that an SE is properly classified as a per se corporation because it will function as a public limited liability company. The Service and Treasury will issue temporary and proposed regulations that will modify § 301.7701–2(b)(8) to include the SE on the per se corporation list. Further, the temporary and proposed regulations will modify § 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 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 Service 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.

EFFECTIVE DATE

The temporary and proposed regulations to be issued adding the Estonian Aktsiaselts, Latvian Akciju Sabiedriba, Lithuanian Akcine Bendroves, Slovenian Delniska Druzba, and Liechtenstein Aktiengesellschaft to § 301.7701–2(b)(8) generally will apply to such entities formed on or after the date of this notice. However, they shall also apply to an entity formed before such date upon a 50 percent or greater change of ownership subsequent to such date. The temporary and proposed

regulations to be issued adding the SE to § 301.7701–2(b)(8) will apply to entities formed on or after October 8, 2004.

DRAFTING INFORMATION

The principal author of this notice is Ronald M. Gootzeit of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Ronald M. Gootzeit at (202) 622–3860 (not a toll-free call).

Weighted Average Interest Rates Update

Notice 2004–69

This notice provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code. In addition, it provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II), and the weighted average interest rate and permissible ranges of interest rates based on the 30-year Treasury securities rate.

CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE

Sections 412(b)(5)(B)(ii) and 412(l)(7) (C)(i), as amended by the Pension Funding Equity Act of 2004, provide that the interest rates used to calculate current liability and to determine the required contribution under § 412(l) for plan years beginning in 2004 or 2005 must be within a permissible range based on the weighted average of the rates of interest on amounts invested conservatively in long term investment grade corporate bonds during the 4-year period ending on the last day before the beginning of the plan year.

Notice 2004–34, 2004–18 I.R.B. 848, provides guidelines for determining the corporate bond weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability. That notice establishes that the corporate bond weighted average is based on the monthly composite corporate bond rate derived from designated corporate bond indices.

2004–43 I.R.B. 706 October 25, 2004

plan years beginning in the month shown below.

The composite corporate bond rate for September 2004 is 5.63 percent. Pursuant to Notice 2004–34, the Service has determined this rate as the average of the

monthly yields for the included corporate bond indices for that month.

The following corporate bond weighted average interest rate was determined for

Corporate

For Plan Years Bond 90% to 110%

Beginning in: Weighted Permissible Month Year Average Range

October 2004 6.21 5.59 to 6.21

imum amount of the deduction allowed under § 404(a)(1).

The rate of interest on 30-year Treasury securities for September 2004 is 4.90 percent. Pursuant to Notice 2002–26, 2002–1 C.B. 743, the Service has determined this rate as the monthly average of the daily determination of yield on the 30-year Treasury bond maturing in February 2031.

The following 30-year Treasury rates were determined for the plan years beginning in the month shown below.

30-YEAR TREASURY SECURITIES WEIGHTED AVERAGE INTEREST RATE

Section 417(e)(3)(A)(ii)(II) defines the applicable interest rate, which must be used for purposes of determining the minimum present value of a participant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury securities for the month before the date of distribution or such other time as the Secretary may by regulations prescribe.

Section 1.417(e)–1(d)(3) of the Income Tax Regulations provides that the applicable interest rate for a month is the annual interest rate on 30-year Treasury securities as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin.

Section 404(a)(1) of the Code, as amended by the Pension Funding Equity Act of 2004, permits an employer to elect to disregard subclause (II) of § 412(b)(5)(B)(ii) to determine the max

30-Year

For Plan Years Treasury 90% to 105% 90% to 110%

Beginning in: Weighted Permissible Permissible Month Year Average Range Range

October 2004 5.14 4.62 to 5.39 4.62 to 5.65

Drafting Information

The principal authors of this notice are Paul Stern and Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice, please contact the Employee Plans’ taxpayer assistance telephone service at 1–877–829–5500 (a toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday. Mr. Stern may be reached at 1–202–283–9703. Mr. Montanaro may be reached at 1–202–283–9714. The telephone numbers in the preceding sentences are not toll-free.

26 CFR 601.601: Rules and regulations. (Also Part 1, § 1397E.)

Rev. Proc. 2004–61