Sam Lichtman in the International Business Times: Treasury's Inversion Rules Create Uncertain Environment for U.S. Multinational Companies

09/23/2014


The Obama administration’s new rules intended to stem the tide of inversions, in which U.S. companies reincorporate abroad to dodge taxes at home, won't be completely effective because they don't address the high corporate tax rate in the U.S. that compels such behavior, say tax experts and analysts.

The rules announced late Monday will make it tougher for American companies to move their headquarters abroad on paper while maintaining U.S. operations and will reduce tax benefits to companies that have done so. Inversions have become more common in recent years, especially in the pharmaceutical and medical device industries. Companies that have inverted left behind the 40 percent corporate tax rate in the U.S., the highest of any major developed economy, to instead pay taxes to the government of their new headquarters, as low as 12.5 percent, in Ireland...

One such open door is called earnings stripping, when companies pay tax deductible interest on loans from foreign units. The Treasury discussed the loophole but chose not to act on it—yet. Other tax avoidance techniques, like using derivatives, forward contracts and rolling loan programs don’t require inversions and though monitored by the IRS, are legal.

“These rules limit techniques, but the incentives [for companies to invert] haven’t changed,” said Sam Lichtman, a partner in the Tax Practice Group in the New York office of Haynes and Boone, LLP. “It doesn’t enable U.S. multinationals to better compete with their foreign multinational competitors.”

Excerpted from the International Business Times, September 23, 2014. To view full article, click here.

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