Sulliden/Rio Alto merger is structured to qualify as a s. 368(a) reorg

Sulliden Gold, whose principal asset is a Peruvian subsidiary holding a development property, is effecting a s. 86 spin-off to its shareholders of a Quebec exploration subsidiary (SpinCo) before its outstanding shares are transferred to Rio Alto Mining on a s. 85.1 exchange for Rio Alto shares.

In order that this transaction likely can qualify as a s. 368(a) reorganization under the Code, Rio Alto will then transfer the Sulliden shares to a newly-incorporated Rio Alto sub so that they can amalgamate. Although this will occur as a conventional "continuation" style amalgamation, the U.S. disclosure considers that a "substantially all" requirement must be satisfied, which implies that the transaction is viewed as a reverse triangular merger under s. 368(a)(2)(E) rather than as a forward triangular merger governed by s. 368(a)(2)(D).  This "substantially all" requirement is expected to be satisfied based in part on the distributed Quebec subsidiary representing less than 10% of Sulliden’s net assets.

A 1992 temporary PFIC regulation indicates that the transaction would not qualify for nonrecognition given that Sulliden is a PFIC and Rio Alto is not.  The disclosure suggests that the transaction nonetheless should qualify for nonrecognition if these regulations are not finalized in their current form, notwithstanding that the statute itself (in s. 1291(f)) provides that to the extent provided in regulations a disposition of PFIC shares will be taxable even if it would otherwise qualify for nonrecognition: the disclosure considers that the statute is not self operative.

Neal Armstrong and Abe Leitner.  Summary of Rio Alto Circular under Mergers & Acquisitions – Mergers – Share-for-share.