On Monday, the IRS and the Treasury took actions to reduce “and when possible, stop” tax inversions from occurring within the United States.
By Michael Lofti @ Ben Swann
Tax inversions have increasingly become an issue within the U.S. economy over the past several years, leading many central planners to seek action against free market options available to companies faced with incrementally higher tax demands.
An economic environment created by the presidency of Barack Obama has encouraged many U.S. companies to seek tax inversions, a process by which an American based business purchases a foreign firm in order to relocate its headquarters to a lower-tax nation while maintaining its original operations.
Treasury Secretary Jack Lew said the Obama Administration is seeking congressional action before taking further action. Lew stated, “These first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether”.
According to the Treasury, Monday’s actions were designed to ensure that that economic incentives spurring the increase in tax inversions become less accessible and less appealing to companies. The Treasury, alongside the IRS, issued a formal notice declaring that the U.S. government “would prevent U.S. companies from accessing a foreign subsidiary’s earnings while deferring U.S. taxes through what it called ‘hopscotch’ loans.”
Among other measures, Monday’s notice would also prevent companies from transferring assets between the ‘controlled foreign corporation’ and the parent company, making is impossible for these businesses to avoid paying U.S. taxes on their overseas endeavors. Additionally, the new notice prevents a U.S. company from being able to restructure, and therefore access a foreign subsidiary’s earnings tax-free.
A spokesman for the House Speaker John Boehner responded to the measures stating, “the answer is to simplify and reform our broken tax code to bring jobs home-and help grow our economy and create even more American jobs.”
These measures will take effect on all business deals not closed by this coming Monday. Who is John Galt?
Finally, the Treasury said its actions would make it increasingly difficult for a U.S. entity to invert by fortifying the requirement that the previous owners of the U.S. company own less than 80% of the new combined business in such transactions.