CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. News By Topic
  3. US Business Decries Treasury's Anti-Inversion Measures

US Business Decries Treasury's Anti-Inversion Measures

by Mike Godfrey, Tax-News.com, Washington

26 September 2014


In their reaction to his proposed regulations to limit corporate inversions, both the Business Roundtable and the United States Chamber of Commerce (USCC) suggested that Treasury Secretary Jack Lew had made matters worse by issuing his proposed regulations, and looked instead for immediate comprehensive tax reform.

The non-legislative measures put forward by Lew on September 22, to deter US multinationals from using corporate inversions to move their tax residence abroad, are aimed, in particular, at preventing certain methods by which inverted companies access a foreign subsidiary's unrepatriated earnings while continuing to defer US tax.

While agreeing that tax reform is the ultimate answer to stop inversions, Democrat lawmakers, such as Senate Finance Committee Chairman Ron Wyden (D – Oregon), have generally supported the Treasury's new rules, but have also persisted in their examination of a variety of legislative measures.

Republican leaders, such as House of Representatives Ways and Means Chairman Dave Camp (R – Michigan), have, on the other hand, pointed out that it would be better to proceed directly to tax reform, as it remains doubtful that such stop-gap measures can be effective, and they could be counter-productive.

There has been, as yet, little reaction from those companies contemplating inversions, as it can be presumed that they are assessing with their tax and legal advisers how the new regulations will affect their particular transactions. However, it has been reported that Burger King and Tim Hortons' USD11bn merger, under which the former will move its tax residence to Canada, will be unaffected, as its solid commercial rationale is still said to stand (and also, presumably, because Burger King has little in the way of untaxed overseas earnings).

Business associations have been more forthcoming in their reaction to the Treasury's measures. The Business Roundtable, an association of CEOs from leading US companies, commented that "tax inversions are a symptom of a US corporate tax system that is outdated, uncompetitive and puts American companies and workers at a disadvantage with the rest of the world. Unfortunately, the regulations proposed by the Treasury Department amount to a Band-Aid solution that will only make matters worse."

"Secretary Lew himself has said that the best way to address tax inversions is by enacting business tax reform," it added. "But Treasury's proposal goes in the opposite direction and does nothing to attract new businesses and investment to US. It is long past time for Congress and the Administration to modernize the US business tax system and encourage investment in this country."

The USCC agreed with that assessment, concluding that, "rather than piecemeal, onerous actions, the Administration should undertake comprehensive tax reform that lowers rates for all businesses and shifts to an internationally competitive system that welcomes investment and produces the economic growth this country needs."

Its Chief Economist Martin Regalia noted that "there are three main reasons for a company to change its tax domicile: first, to remove future foreign source income from a secondary level of US taxation, the territorial issue; second, to avoid the highest tax rate in the industrialized world on all income earned abroad; and, third, to access accumulated cash in the former US foreign subsidiary via a series of loans through the new foreign parent."

He pointed out that "Treasury's actions will close off the third option and thus make inversions less profitable – but not unprofitable – for inverting companies that wanted to bring the cash held abroad back to the US. Inverting companies will still receive all of the benefits of the first two reasons for inverting."

"Moreover, if companies want to use the accumulated cash in the former foreign subsidiary, they can still do so," he continued. "They just must use the proceeds abroad to create income and jobs abroad. … The Administration's vain attempt to lock corporations in to an obsolete tax system will only serve to further lock capital out."

In his blog, the Tax Policy Center's Howard Gleckman also confirmed that Treasury's new rules will not stop inversions. "They will limit some tax benefits of some deals," he wrote, "but preserve a major source of tax juice in many transactions: the practice known as earnings stripping," where inverted companies load their US subsidiary with debt after an inversion and deduct the subsequent interest payments to further reduce their US tax liability.

"By delaying anti-earnings stripping rules, Treasury also seemed to tread carefully on the question of its legal authority," Gleckman suggested. However, he also noted that "Treasury did hold out the threat that it would go after earnings-stripping in the future. It announced it is considering curbs on that practice and that they could be imposed retroactive to September 22."

TAGS: compliance | tax | business | tax compliance | law | corporation tax | multinationals | transfer pricing | United States | tax breaks | tax reform | regulation | Tax

To see today's news, click here.

 















Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »



Stay Updated

Please enter your email address to join the Tax-News.com mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.


To manage your mailing list preferences, please click here »