Treasury secretary willing to consider regulatory response to inversions

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Regulatory vs. Legislative: Confused about what’s going on in the world of inversion? The latest installment of Tax Hot Topics explains how the U.S Treasury, the Obama administration and Capitol Hill are responding. More at: http://gt-us.co/1oHHxFs

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Treasury secretary willing to consider regulatory response to inversions

  1. 1. Treasury Secretary Jacob Lew said this week that the Obama administration is considering administrative options to curb inversions. The comments mark a significant shift from just a few weeks ago, when Lew said he didn’t believe Treasury had the power to address inversions without legislation. The announcement came just hours after Senate Democrats wrote to Lew asking Treasury to take immediate administrative action to curtail the tax benefits U.S. companies receive for merging with offshore companies and reorganizing as foreign entities. The Democratic pressure was spurred at least in part by an article from former Treasury Deputy Assistant Secretary Stephen Shay, who argued that Treasury is already authorized to limit the tax benefits of inversions. Shay said Treasury could write regulations under Section 385, Section 956 or several other sections to limit expatriated entities’ use of inter-company debt to strip earnings out of the United States. Treasury said it’s reviewing a broad range of actions that could either limit companies’ ability to engage in inversions or reduce the tax benefits after inversions take place. Lew’s comments may also be intended to use the threat of regulatory action to curb the slew of recent inversion transactions. He told The New York Times he wants to “change what’s happening [by] putting companies on notice.” Lew acknowledged that the best way to address the growing trend of U.S. companies’ inversions would be through comprehensive tax reform with specific anti- inversion proposals. Congress has left for the August recess, but inversions continue to be a hot issue for lawmakers. House Ways and Means Committee ranking minority member Sander Levin, D-Mich., unveiled a proposal that would limit the benefits of earnings stripping by changing Section 163(j) and Section 956. Senate Finance Committee member Chuck Schumer, D-N.Y., has said he intends to write legislation to limit interest deductions and prevent earnings, similar to proposals the administration has offered in the budget. Treasury secretary willing to consider regulatory response to inversions administrative options to curb inversions
  2. 2. Treasury secretary willing to consider regulatory response to inversions “Grant Thornton” refers to Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and its member firms are not a worldwide partnership. All member firms are individual legal entities separate from GTIL. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please visit grantthornton.com for details. © 2014 Grant Thornton LLP  |  All rights reserved  |  U.S. member firm of Grant Thornton International Ltd Connect with us grantthornton.com @grantthorntonus linkd.in/grantthorntonus Tax professional standards statement This document supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the subject of this document, we encourage you to contact us or an independent tax professional to discuss the potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this document may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this document is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended. Finance Committee Chair Ron Wyden, D-Ore., has expressed support for legislation that would strengthen the anti-inversion rules in Section 7874 retroactively from May. But so far, Finance Committee ranking minority member Orrin Hatch, R-Utah, is one of the few Republicans to express any openness to enact legislation on inversions outside of tax reform. Hatch said he would consider legislation only if it is revenue neutral and not punitive or retroactive. Republicans and Democrats appear to have little common ground on the issue for now, and the upcoming elections and short legislative calendar make action an uphill battle. The issue has garnered the interest of lawmakers on both sides of the aisle, though, and it will likely help drive for future tax reform. Contact Mel Schwarz Partner, Washington National Tax Office Grant Thornton LLP T 202.521.1564 E mel.schwarz@us.gt.com

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