By Jeremy Bogaisky
The Treasury Department issued new rules Monday evening to discourage U.S.-based companies from moving their headquarters overseas to reduce their tax bills to Uncle Sam.
The revisions to five sections of the tax code are designed to make it more difficult for companies to strike so-called “tax inversion” deals, in which a U.S. company reincorporates overseas after merging with a foreign business, and to reduce the financial benefits.
“These first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether,” said Treasury Secretary Jacob J. Lew in a statement. “While comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the recent surge of inversions, we cannot wait to address this problem.”
Among the revisions, which will apply to deals that close after today, are a ban on so-called “hopscotch” loans, in which companies seek to avoid U.S. taxes on repatriated foreign earnings by making loans to a new foreign parent company created in a tax inversion deal.
Treasury closed a loophole that allowed a tax-free transfer of cash or property from a foreign subsidiary to the new foreign parent, and moved to stop companies from restructuring foreign units to access deferred earnings without paying taxes.
It also cracked down on techniques companies have used to meet a pre-existing requirement that a U.S. business can invert only if it does a deal that results in a new company in which the share of ownership of the foreign “acquirer” is above 20%. U.S. companies will no longer be able to “skinny down,” or reduce their size before completing a deal by issuing large dividends, and they will no longer be able to count passive assets to inflate the new foreign parent’s size.
Treasury also stripped the tax benefits from “spinversions,” in which U.S. companies have inverted portions of themselves by shifting assets to a foreign entity and then spinning it off to shareholders. Such a spin-off will now be treated as a domestic company.
A spate of tax inversions this year, mostly involving health care companies, has raised the ire of lawmakers and President Obama, who has accused the companies of “gaming the system,” depriving the government of tax revenue while still taking advantage of all the benefits of operating in the United States. Last month Burger King said it was in talks to merge with Canada’s Tim Hortons and move its headquarters from Miami to Oakville, Ontario, with $3 billion in financing from Warren Buffett’s Berkshire Hathaway Berkshire Hathaway.
The Obama administration would prefer Congress to take action to stem corporate tax flight, but with lawmakers stuck in the partisan mire, the White House said in August that the Treasury Department was preparing regulatory curbs. There is debate among tax experts as to whether Treasury actually has the legal authority to limit the practice.
The Treasury Department said it was considering additional regulatory actions.
“These first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether,” said Treasury Secretary Jacob J. Lew in a statement. “While comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the recent surge of inversions, we cannot wait to address this problem.”
Among the revisions, which will apply to deals that close after today, are a ban on so-called “hopscotch” loans, in which companies seek to avoid U.S. taxes on repatriated foreign earnings by making loans to a new foreign parent company created in a tax inversion deal.
Treasury closed a loophole that allowed a tax-free transfer of cash or property from a foreign subsidiary to the new foreign parent, and moved to stop companies from restructuring foreign units to access deferred earnings without paying taxes.
It also cracked down on techniques companies have used to meet a pre-existing requirement that a U.S. business can invert only if it does a deal that results in a new company in which the share of ownership of the foreign “acquirer” is above 20%. U.S. companies will no longer be able to “skinny down,” or reduce their size before completing a deal by issuing large dividends, and they will no longer be able to count passive assets to inflate the new foreign parent’s size.
Treasury also stripped the tax benefits from “spinversions,” in which U.S. companies have inverted portions of themselves by shifting assets to a foreign entity and then spinning it off to shareholders. Such a spin-off will now be treated as a domestic company.
A spate of tax inversions this year, mostly involving health care companies, has raised the ire of lawmakers and President Obama, who has accused the companies of “gaming the system,” depriving the government of tax revenue while still taking advantage of all the benefits of operating in the United States. Last month Burger King said it was in talks to merge with Canada’s Tim Hortons and move its headquarters from Miami to Oakville, Ontario, with $3 billion in financing from Warren Buffett’s Berkshire Hathaway Berkshire Hathaway.
The Obama administration would prefer Congress to take action to stem corporate tax flight, but with lawmakers stuck in the partisan mire, the White House said in August that the Treasury Department was preparing regulatory curbs. There is debate among tax experts as to whether Treasury actually has the legal authority to limit the practice.
The Treasury Department said it was considering additional regulatory actions.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.