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The Daily

Treasury Department Issues New Regs on Tax Inversions

By:
Jason Wong
Published Date:
Apr 5, 2016

Tax HavenYesterday, the U.S. Department of the Treasury released new temporary regulations aimed to discourage American corporations from inverting (moving its tax residence overseas), a tactic used by a U.S.-based multinational company to reduce or avoid paying U.S. taxes. These new regulations include the following, which are further detailed in the Treasury press release:

  • Limiting inversions by disregarding foreign parent stock attributable to certain prior inversions or acquisitions of U.S. companies.
  • Targeting transactions that increase related-party debt that does not finance new investment in the United States (Action under section 385 of the code).
  • Allowing the IRS on audit to divide a purported debt instrument into part debt and part stock (Action under section 385 of the code).
  • Requiring documentation for members of large groups to include key information for debt-equity tax analysis (Action under section 385 of the code).

In 2014, President Obama placed responsibility on American accountants for the increased number of U.S. corporations employing tax inversions to reduce their taxes. Then-Society President Scott M. Adair responded, stating that corporate tax reform is the “the elephant in this room.” Since then, the Obama Administration has attempted to address corporate tax inversions with more stringent regulations.