Today, House Ways and Means Committee ranking minority member Sander M. Levin (D-MI), released the Protecting the Corporate Tax Base Act of 2016. The bill specifically targets two common tax avoidance practices: hopscotch lending and decontrolling. A hopscotch loans allows a foreign parent or affiliate to bypass US taxation by borrowing deferred earnings of a newly acquired US controlled foreign corporation (CFC). The rules would go further than those issued by the Treasury Department in April, as they would apply to any multinational company acquired by a foreign company, not just inverted companies.
The bill would also target decontrolling, defined as a situation where a non-CFC foreign affiliate transfers a sufficient amount of property to the CFC in exchange for 50% or more of the CFC stock, resulting in the “de-controlling” of the CFC. Under the current rules, after “de-controlling” the CFC, the non-CFC foreign affiliate can access the deferred earnings of the CFC without paying US taxes. The new bill attributes the stock of a foreign corporation owned by a foreign person to a related US person for purposes of determining whether the US person is a US shareholder of the foreign corporation. This determination is then used to decide whether the foreign corporation is a CFC.