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US Treasury Announces Revised Temporary 'Corporate Inversion' Rules

by Mike Godfrey, Tax-News.com, Washington

16 December 2003


The US Treasury Department on Friday announced a revision to temporary regulations that require US corporations to notify the Internal Revenue Service and the firm’s own shareholders when moving the company headquarters offshore, or when they are acquired by a foreign company.

According to a Treasury statement:

"These regulations are part of Treasury’s proposals to address corporate inversion transactions, which were unveiled by Treasury Assistant Secretary Pam Olson in testimony before the House Ways & Means Committee on June 6, 2002."

"We believe there are several specific areas in which changes are urgently needed,” Olson said at the time. “The statutory rules regarding the deductibility of interest payments to related parties must be tightened to prevent the inappropriate use of related-party debt to generate deductions against income from US operations that otherwise would be subject to US tax.”

"The prevalent and increasing use of foreign related-party debt in inversion transactions demonstrates the importance to these transactions of the tax reductions achieved through interest deductions and the need to act now to eliminate this benefit. Accordingly, we propose statutory changes to tighten the interest disallowance rules of section 163(j) in several respects,” said Olson.

Temporary regulations were first released on November 12, 2002, and covered transactions occurring after 2001. The revised regulations cover transactions occurring after 2002, and reflect clarifications that will ensure better information reporting by brokers.


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