Obama Administration issues new rules to slow tax inversions

Posted by on September 23, 2014
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The Treasury Department tightened tax rules Monday to deter U.S. companies from moving their legal headquarters to lower-tax countries, part of a White House effort to slow a wave of so-called corporate inversions that effectively reduce federal revenues.

Treasury officials took action under five sections of the U.S. tax code to make inversions harder and less profitable, removing some of the appeal that has made the transactions more common in recent years, particularly in the pharmaceutical industry.

In an inversion, an American company reincorporates for tax purposes in a tax-friendlier country such as the U.K. or Ireland, typically while maintaining much of their operations in the U.S. Most recent inversions sprang from mergers of a U.S. firm with a smaller foreign firm after regulatory steps taken during President Barack Obama’s first term curbed other types of inversions.

The Treasury rules will make it harder for companies that invert to use cash accumulating abroad—a big draw in recent deals. In addition, the government has made it more difficult to complete these overseas mergers.

The tax changes took effect immediately, officials said, and applied to all deals that hadn’t closed by Monday.

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