Foreign Firms Blocked From US Employee Share Tax Break

by Mike Godfrey, Tax-News.com, Washington

29 August 2005

International companies will be unable to claim tax deductions for dividends paid on shares held by American employees under stock ownership plans as a result of new regulations released by the US Treasury Department last week.

According to the regulations, only the parent company can claim the deduction, which will mean the elimination of employee stock ownership plans for US subsidiaries of foreign companies.

The regulations also state that no companies, regardless of where they are based, can deduct the cost of repurchasing shares sold to employers under an employee stock ownership plan.

The proposed regulations, which would go into effect after a comment period, are aimed at a 2003 U.S. Ninth Circuit Court of Appeals ruling, which agreed with Idaho-based paper and wood products company Boise Cascade Corp. that the firm could treat a stock buyback as a dividend and therefore claim a tax break.

The IRS had denied the refund, and has served notice to other companies that it intends to contest similar deductions in other districts.

Recommended