Just as the Treasury Department and the Internal Revenue Service issued guidance to curb corporate tax inversions late Monday, lawmakers said they would work to ensure legislation is passed to rein in such inversions.
Treasury and the IRS issued a joint notice, which they say takes “targeted action to reduce the tax benefits of — and when possible, stop — corporate tax inversions.”
Treasury Secretary Jacob J. Lew explained in a statement that “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.”
He continued: “While comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the recent surge of inversions, we cannot wait to address this problem.”
Treasury will 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,” Lew stressed.
Specifically the Treasury and IRS Notice does the following, as explained in the Treasury fact sheet:
— Prevents inverted companies from accessing a foreign subsidiary’s earnings while deferring U.S. tax through the use of creative loans, which are known as “hopscotch” loans (Action under section 956(e) of the code);
— Discourages inverted companies from restructuring a foreign subsidiary in order to access the subsidiary’s earnings tax-free (Action under section 7701(l) of the tax code);
— Closes a loophole to prevent an inverted companies from transferring cash or property from a CFC to the new parent to completely avoid U.S. tax (Action under section 304(b)(5)(B) of the code); and