Corporate Inversions - US Action
THE US Government this week tightened tax rules to deter American Companies from moving their headquarters to lower tax countries to escape US taxation.
A corporate inversion is transaction in which a U.S. based multinational restructures so that the U.S. parent is replaced by a foreign parent, in order to avoid U.S. taxes.
US Treasury Secretary Jacob Lew said,
Inversion transactions erode our corporate tax base, unfairly placing a larger burden on all other taxpayers, including small businesses and hardworking Americans. It is critical that this unfair loophole be closed.
Today, in an important first step, Treasury is announcing targeted action to meaningfully reduce the economic benefits of corporate inversions, and when possible, stop them altogether. This action will significantly diminish the ability of inverted companies to escape U.S. taxation. For some companies considering deals, today's action will mean that inversions no longer make economic sense.
These are transactions in which a U.S. based multinational restructures so that the U.S. parent establishes a foreign tax domicile, in large part to avoid U.S. taxes. This shifting of a firm's tax address is not the same as a merger driven by business reasons, such as efficiency or expansion. These transactions may be legal, but they are wrong, and our laws should change.
We're also making it more difficult for companies to invert, by strengthening the requirement that the former owners of the U.S. entity own less than 80 percent of the new combined entity.