US Treasury issues new rules to combat tax inversion

The US Treasury is looking to close an “unfair loophole” that currently allows US companies to avoid taxation by moving their headquarters abroad.

On Monday, the US Treasury Department said it was seeking to bring the policy of companies moving their headquarters overseas to a halt by slashing the corporate tax inversions, the tax benefits generated by such transactions.

“Inversion transactions erode our corporate tax base, unfairly placing a larger burden on all other taxpayers, including small businesses and hard-working Americans,” Treasury Secretary Jacob Lew said.

“It’s critical that this unfair loophole be closed.

“Now that it’s clear that Congress won’t act before the lame-duck session, we’re taking initial steps that we believe will make companies think twice before undertaking an inversion to try to avoid U.S. taxes.”

Lew said that by introducing a new set of measures, the Treasury aimed at making inversions less appealing to US businesses, while the Treasury will also demand that owners of US companies own less than 80% of a newly combined business.

“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,” Lew said.

“Treasury will continue to review a broad range of authorities for further anti-inversion measures as part of our continued work to close loopholes that allow some taxpayers to avoid paying their fair share.”

The new regulations will be immediately implemented, though Treasury officials said they will not be retroactive.

“For some companies considering deals, today’s [Monday] actions may mean that those transactions no longer make economic sense,” Lew said.