- New Regulations Aimed at Discouraging Tax Inversions
- October 3, 2014
- Law Firm: McDonald Hopkins LLC - Cleveland Office
On Monday, the Obama administration unveiled new rules intended to discourage corporations from moving their headquarters abroad to avoid paying U.S. taxes.
While the new rules will not block the practice, it will make such inversions far less economically profitable for corporations considering such a move.
The Treasury Department is still drafting the new regulations but the agency announced that the new regulations would apply to any corporate inversion deal that occurs from this Tuesday and on.
Under the new rules, companies who move their headquarters abroad in an attempt to avoid paying U.S. taxes will no longer be able to use "hopscotch loans" and would strengthen rules requiring the former owners of the U.S. company to own less than 80 percent of any new, foreign-based entity.
The Treasury Department is considering additional regulations, including regulations intended to prevent companies from shifting their U.S. profits to lower-tax foreign jurisdictions.
Inversions have become a high profile issue after a wave of companies - including Burger King and Chiquita - have announced mergers with foreign companies based in lower tax countries.
Republicans have called on Congress and the White House to push to lower the U.S. corporate tax rate as a way to discourage such inversions, an approach they prefer over the regulation approach of the White House and Congressional Democrats. The U.S. corporate tax rate currently stands at 35 percent.