On Monday, 22 September the U.S. Department of Treasury and the Internal Revenue Service issued a notice with the stated aim of reducing the tax benefits of and, where possible, stopping corporate inversions.
According to the Department of Treasury’s press release, Monday’s notice will:
- Prevent inverted companies from accessing a foreign subsidiary’s earnings while deferring US tax through the use of loans (known as ‘hopscotch’ loans);
- Prevent inverted companies from restructuring a foreign subsidiary in order to access the subsidiary’s earnings tax-free;
- Close a loophole to prevent an inverted company from transferring cash or property from a controlled foreign corporation to a new parent to completely avoid US tax; and
- Make it more difficult for US entities to invert by strengthening the requirement that the former owners of the US entity own less than 80 per cent. of the new combined entity.
While the effects of the measure have yet to be assessed, Monday’s notice contains important new rules for past and future inversions.
Following Monday’s publication, Treasury Secretary Jacob J. Lew stated that “Treasury will continue to 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”.