US Treasury Tries To Curb Inversions

The U.S. Treasury Department announced Sept. 22 that it will move to disincentivize the practice of corporate inversions. A corporate inversion occurs when a multi-national business merges with a company overseas to take advantage of the lower tax environment to be had there.

Treasury Secretary Jacob Lew explained to reporters on a conference call that a comprehensive tax reform with anti-inversion provisions would be the best way to stop the practice, but that the Treasury would be rolling out a new set of measures to diminish the tax benefits that companies can obtain via an inversion, according to Fortune Magazine. These measures include eliminating some of the ways companies can gain access to deferred foreign subsidiary earnings without incurring taxes and decreasing the ownership share that owners of the U.S. company may hold in the new combined entity to below 80 percent.

“Inversion transactions erode our corporate tax base, unfairly placing a larger burden on all other taxpayers, including small businesses and hard-working Americans,” Treasury Secretary Jacob Lew said. “It’s critical that this unfair loophole be closed. Now that it’s clear that Congress won’t act before the lame-duck session, we’re taking initial steps that we believe will make companies think twice before undertaking an inversion to try to avoid U.S. taxes.”

CNBC noted that the recently announced Burger King-Tim Hortons deal is still likely to meet these new criteria. While they may kill off some deals that are currently in the works, it is probable that new strategies will appear that allow companies to reduce their tax burden in similar ways without falling foul of the law. The news source quoted an old joke in the corporate tax industry: “What is the difference between legal tax avoidance and illegal tax evasion? One year.”

Follow up on the topic of corporate inversions in the U.S. with some of our previous posts:

• Democrats Ask Obama To Act Alone On Inversions
• Mark Cuban Protests Tax Inversions
• What Corporate Inversions Are Telling Us (And What Washington Refuses To Hear)
• Treasury Secretary urges Congress to end inversions
• New Congressional Report Highlights Tax Inversions