For any company considering a tax inversion, the latest news form the U.S. Treasury will likely make it reconsider. Tax inversions, which are used by American companies to reduce their tax bill, occur when a company acquires or opens a subsidiary in a foreign country in order to change its tax address and save millions. Many companies have employed this tactic in recent months, which has caused the government to increase its efforts to stop them.
According to the Treasury Department, the new regulations are aimed at fixing the country’s broken tax system. Specifically, the new regulations from the IRS and the Treasury will seek to put an end to the “earnings stripping” process. This occurs when a company pays deductible interest to an affiliate or parent company in another country, which has lower taxes.
While many corporations have expressed displeasure with the government’s efforts the current White House administration, along with the IRS and the Treasury, has pushed forward to make these changes, especially to target earnings stripping. The department did announce that it would offer a “broad exemption” for short-term loans and cash pools. It also said the effective date won’t be until January 1, 2018, so companies will have more time to prepare and comply with the changing regulations.
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