U.S. to curb corporate offshore tax rules

The U.S. Treasury Department plans to pare back regulations that were intended to prevent American companies from moving profits offshore to avoid taxes, according to guidance released Thursday.

The instructions mark a change in U.S. tax policy that has in recent years focused on imposing stricter rules on American corporations using complex transactions to move money overseas to skirt taxes. The Treasury Department said parts of the regulations, implemented in the final months of President Barack Obama’s administration, are no longer necessary because of the 2017 tax law enacted under President Donald Trump.

“Because tax cuts made our business environment more competitive, we are now able to remove regulatory burdens that have been rendered obsolete, further reduce costs for job creators and hardworking Americans, and protect the U.S. tax base,” Treasury Secretary Steven Mnuchin said in a statement.

The Treasury Department regulations address rules preventing American firms from lowering their U.S. tax bills by shifting income to offshore related companies, lending that money back to their domestic companies, and then deducting the interest off their Internal Revenue Service bills.

A senior Treasury Department official on a call with reporters Thursday said the agency intends to repeal a part of the rules that automatically re-characterize tax-deductible loans as taxable stock if a U.S. company is receiving loans from and distributing cash to a foreign branch within a 72-month window.

The rule made it more likely that companies would face higher tax bills as they moved money in and out of the country. The Treasury Department plans to replace it with a standard that is more specific and gets rid of some complex exceptions, the official said.

The new rule would give companies some leeway to prove that two transactions aren’t related and don’t deserve adverse tax consequences.

Businesses resisted the original rules, published in 2016, arguing that the IRS was overstepping its authority.