Changes Designed To Make Offshore Accounts Less Favorable For US Companies
Bloomberg News reported that on Thursday the Treasury Department announced actions designed to make corporate inversions tougher and limit the benefits US companies receive when conducting transactions through foreign accounts to reduce their taxes. Specifically, “the Treasury said it’s reducing the tax benefits of inversions by limiting the ability of an inverted company to transfer its foreign operations to the new foreign parent without paying U.S. tax.” The Treasury Department “also sought to stop inversions in which a U.S. company buys a smaller foreign company and then uses the transaction to establish a new tax address for the combined firm in a third country.” Treasury Secretary Jacob Lew during a Thursday conference call said, “These actions further reduce the benefits of an inversion and make these transactions even more difficult to achieve. This is an important step, but it is not the end of our work. We continue to explore additional ways to address inversions – including potential guidance on earnings stripping – and we intend to take further action in the coming months.” Tax inversions have faced criticism from both presidential candidates and some members of Congress, Bloomberg reported.
What Happens Next
Bloomberg reported that some of the changes will take effect for any transactions closing as of Nov. 20, while other changes will “apply retroactively to those completed after September 2014.”
What This Means For Small Businesses
The AP reported that although the Treasury Department has issued the new regulations to curb tax inversions, Treasury Secretary Lew “says there is only so much the administration can do and called on Congress to pass legislation to stop the maneuvers.” For instance, the process known as “earnings stripping,” which involves companies increasing “deductions for their U.S. operations as a way to move profits to low-tax countries,” are left unchecked by these new regulations. The results of the Treasury Department weighing in on this issue are unlikely to be helpful to the small business community, as they could lead to further complications in an already complex, burdensome tax code.
Additional Reading
The Wall Street Journal also covered the story.
Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.