Feds move to slam shut the tax inversion loophole
Corporate tax inversions could soon get more taxing — and more difficult to pull off.
The Treasury Department and the Internal Revenue Service Monday announced temporary restrictions to add barriers to inversions, which are corporate maneuvers some companies undertake at least in part as a move to cut their future U.S. tax bills. The government is also proposing new rules on the transactions to make them less lucrative.
Using inversions, companies move their tax headquarters overseas to avoid U.S. taxes by buying a foreign company and relocating the headquarters to that country. These moves, taken by a number of U.S. companies such as Eaton (ETN) and Seagate (STX), as well as considered by Pfizer (PFE) and Johnson Controls (JCI), have stoked concern over the fairness of the practice.
The new rules, which follow steps taken in September 2014 to make the practice more difficult to pull off, shows how U.S. regulators are moving to curb the taxcutting tool’s popularity.
“Treasury has taken action twice to make it harder for companies to invert,” Treasury Secretary Jacob Lew said in a state- ment. “These actions took away some of the economic benefits of inverting and helped slow the pace of these transactions, but we know companies will continue to seek new and creative ways to relocate their tax residence to avoid paying taxes here at home.”
“Today’s announcement shows that the Administration remains committed to stopping tax-motivated inversions by U.S. corporations,” said Rep. Sander Levin, D-Mich., in a statement.
New temporary regulations look to slow down inversions by closing a loophole that allowed foreign companies to make smaller purchases of U.S. companies to avoid inversion thresholds that triggered more rules.
Additionally, the government seeks a number of new rules, including one that could prevent the practice of a U.S. unit shifting debt to a foreign parent company as a way to maximize deductions. Companies would also be required to provide more disclosure of debt, making enforcement by U.S. tax officials more straightforward.
U.S. pharmaceutical giant Pfizer (PFE) and Ireland rival Allergan (AGN), whose recordbreaking $160 billion merger deal announced in November was not expected to be blocked by existing regulations, said they are reviewing the newly announced rules.
“Prior to completing the review, we won’t speculate on any potential impact,” the companies said.