 "US takes steps to stop companies from tax evasion")
The US government has announced several new steps aimed at stopping American companies from using a foreign address for evading taxes.
US companies are currently taking advantage of an environment that allows them to move their tax residence overseas to avoid paying taxes, without making significant changes in the nature of their overall operations, the Treasury said yesterday after it announced its new measures.
Under the new rules, effective yesterday it would be more difficult for American companies to undertake a corporate inversion by limiting the ability of US companies to combine with foreign entities using a new foreign parent located in a "third country."
It also limits the ability of US companies to inflate the new foreign parent corporation's size and therefore avoid the 80% ownership rule.
The new rules require the new foreign parent to be a tax resident of the country where the foreign parent is created or organised.
This last requirement will need to be met in order to satisfy the current rule that at least 25% of the new entity's business activity is in the home country of the new foreign parent.
"These actions further reduce the benefits of an inversion and make these transactions even more difficult to achieve. This is an important step, but it is not the end of our work. said Jack Lew, US Treasury Secretary.
"We continue to explore additional ways to address inversions - including potential guidance on earnings stripping - and we intend to take further action in the coming months," Lew said.
Lew alleged US companies were currently taking advantage of an environment that allows them to move their tax residence overseas to avoid paying taxes in the US, without making significant changes in the nature of their overall operations.
"Treasury took targeted action last year to address this issue by making it more difficult for companies to undertake an inversion and reduce the economic benefits of doing so," he said.
"The first inversion notice made a real difference by reducing some of the economic benefits of inversions, resulting in a decline in the pace of these transactions. But our actions can only slow the pace of these transactions. Only legislation can decisively stop them," he said.
In a statement, House Ways and Means Chairman Kevin Brady acknowledged inversions are a serious problem that need to be addressed.
"Treasury is contradicting its own call to pursue a more competitive tax code in favour of shortsighted counterproductive triage which will only lock American businesses in an even more uncompetitive tax system. Instead, we should all redouble our efforts to work together to fix our broken tax code," Brady said.
