The Trump Administration is reportedly considering a business-friendly move to reopen the door to the migration of money to offshore destinations to reduce the tax burden of US companies.
As reported by Bloomberg, business groups including the US Chamber of Commerce sought the ear of the President to revise or remove regulations put in place in the final days of the Obama Administration.
The 2016 regulations were intended to stem the flow of American companies moving their home base overseas to take advantage of preferable tax structures. We have discussed several of these companies including Apple, with headquarters in Ireland, and Google with offices in Luxembourg.
Corporate inversion and earnings stripping
There are a couple of terms to describe the practice of taking your toys to a different country to reduce your taxes. A “corporate inversion” is the process by which a US company relocates out of the States to reduce tax liability. Whether through merger or subsidiary action, the relocation does what we said above—allows the company to take advantage of more profitable tax laws.
Part of the package of a corporate inversion is the opportunity for “earnings stripping,” a legal tax tactic that further reduces taxes by providing the opportunity for tax-deductible interest on payments made on debt paid within the company, or between subsidiaries.
In 2016, the rules were aimed at deterring these tax-avoidance strategies and the tax fraud that could sometimes be found as a result. Overall, the US at the time was attempting to slow the flow of money out of the US in order to keep tax liability in the country. In 2019, Treasury is allegedly looking at those rules as being unfair to US companies seeking to boost profits by reducing taxes.
Proponents of revising the rule say the 2017 tax overhaul made the stricter rules unnecessary because of the lower US tax rate. Critics of the revision of the 2016 regulations, like Senate Finance Committee member Senator Ron Wyden, note “Rules preventing the offshoring of corporate profits should be strengthened--not weakened.”
So far we have not seen any action around the issue. At play is concern for legitimate tax relief for US companies and the outright slant of tax laws to further line the pockets of US companies at the expense of the American tax base.
Experienced tax attorneys in Chicago and Cleveland
From offices in Cleveland, Ohio, and Chicago, Illinois, the law firm of Robert J. Fedor, Esq., LLC provides local, national, and international legal services to high asset individuals and companies to respond to civil tax audits, criminal tax investigations, and tax controversy. Contact us or call 800.579.0997 today.
