Printer Friendly

US cracks down on companies moving overseas for tax shields.

Washington- The Obama administration cracked down Monday on certain overseas corporate mergers and acquisitions, aiming to curb American companies from shifting their ownership abroad to shirk paying US taxes.

New regulations from the Treasury Department will make these so-called corporate inversions less lucrative by barring creative techniques that companies use to lower their tax bill. Additionally, the US will make it harder for companies to move overseas in the first place by tightening the ownership requirements they must meet.

"This action will significantly diminish the ability of inverted companies to escape US taxation," Treasury Secretary Jacob Lew said. He added that for some companies considering inversions, the new measures would mean inverting would "no longer make economic sense."

Administration officials who briefed reporters could not say how many pending inversions might be stopped by the new rules and specifically would not address whether the rules would block one of the most high-profile moves, an effort that Burger King announced in August to acquire Tim Hortons, a Canadian coffee and doughnut chain.

In such transactions, a US business merges with or is acquired by a foreign company in a country with a lower tax rate. President Barack Obama has denounced inversions as unpatriotic and has urged Congress to stop them.

Obama applauded the Treasury for taking steps to reverse the trend of companies seeking to "exploit this loophole" to avoid paying their fair share in taxes. Yet he said he was still calling on Congress to pursue broader tax reform that would reduce the corporate tax rate, close loopholes and make the tax code simpler.

"While there's no substitute for congressional action, my administration will act wherever we can to protect the progress the American people have worked so hard to bring about," Obama said in a statement.

Coming just six weeks ahead of Election Day, the timing of Monday's announcement highlighted the appeal Democrats believe the issue has with voters. By having Treasury announce new steps now, the White House was practically daring Republicans to voice their opposition.

The announcement puts companies on notice that Treasury will be drafting regulations to clamp down, but the new measures will take effect immediately even while those regulations are pending. That means any transactions from Tuesday onward will be subject to the tougher restrictions.

Three new measures will seek to stop companies from finding ways to access earnings from a foreign subsidiary without paying US taxes, including "hopscotch" loans, in which companies shift earnings by lending money to the new foreign parent company while skipping over the US-based company.

Another rule change would make it harder for merged or acquired companies to benefit from lower foreign taxes by tightening the application of a law that says the American company's shareholders must own less than 80 percent of the new, combined company. The administration would like to reduce that percentage to 50 percent, but that will require legislation. In the absence of legislation, the administration says its new rules will make it harder for companies to get around the 80 percent requirement by prohibiting certain arrangements, such as a firm making large dividend payments ahead of the acquisition to reduce its size on paper.

CAPTION(S):
COPYRIGHT 2014 Manila Bulletin Publishing Corp.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2014 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Banking & Finance
Publication:Manila Bulletin
Date:Sep 23, 2014
Words:532
Previous Article:Wake Up with a Smile.
Next Article:BSP approves Lucio Co's P6-billion buy-in into PBCom.

Terms of use | Privacy policy | Copyright © 2018 Farlex, Inc. | Feedback | For webmasters