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United States : Additional Treasury Actions to Rein in Corporate Tax Inversions.

A corporate inversion is a 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. Current law subjects many inversions that appear to be based primarily on tax considerations to certain potentially adverse tax consequences. However, the continued occurrence of these transactions indicates that for many corporations these consequences are acceptable in light of the potential tax benefits.

Under current law, an inverted company is subject to potential adverse tax consequences if, after the transaction: less than 25 percent of the new multinational entity s business activity is in the home country of the new foreign parent, and the shareholders of the former U.S. parent end up owning at least 60 percent of the shares of the new foreign parent. If these criteria are met, the tax consequences depend on the size of the continuing ownership stake of the shareholders of the former U.S. parent. If the continuing ownership stake is 80 percent or more, the new foreign parent is treated as a U.S. corporation, thereby nullifying the corporate inversion for tax purposes. If the continuing ownership stake is at least 60 but less than 80 percent, U.S. tax law respects the foreign status of the new foreign parent but other potentially adverse tax consequences may follow. The notice being issued today involves transactions in this continuing ownership range of 60 to 80 percent.

Only legislation can decisively stop inversions. The Administration has been working together with Congress for several years in an effort to reform our business tax system, make it simpler and more pro-growth, and address the incentives that encourage companies to engage in inversions.

In the absence of legislative action, on September 22, 2014, Treasury announced guidance that both made it more difficult for U.S. companies to invert and reduced the tax benefits of doing so by eliminating techniques used by inverted companies to access overseas earnings without paying U.S. tax. Today, Treasury is taking additional actions to make it more difficult for U.S. companies to invert and to further reduce the tax benefits of inversions.

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Publication:Mena Report
Date:Nov 20, 2015
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