On Monday Evening the President via the Treasury Department kicked off his latest attack on corporations and the economy. The U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued a notice that takes targeted action to reduce the tax benefits of — and when possible, stop — corporate tax inversions. Companies are increasingly using the technique of inversion, whereby a U.S. based multinational restructures so that the U.S. parent is replaced by a foreign corporation, in order to avoid U.S. taxes.
Considering the fact that corporations in the United States face the highest tax rate in the world some corporations rely on these tactics to stay competitive. It certainly beats the companies moving out of the country totally, which some may have to resort to if the tax inversions are eliminated.
According to the White House, today’s action eliminates certain techniques inverted companies currently use to gain tax-free access to the deferred earnings of a foreign subsidiary, significantly diminishing the ability of inverted companies to escape U.S. taxation. It also makes it more difficult for U.S. entities to invert by strengthening the requirement that the former owners of the U.S. company own less than 80 percent of the new combined entity. For some companies considering mergers, today’s action will mean that inversions no longer make economic sense.
Treasury will continue to examine ways to reduce the tax benefits of inversions, including through additional regulatory guidance as well as by reviewing our tax treaties and other international commitments. Today’s Notice requests comments on additional ways that Treasury can make inversion deals less economically appealing. Today’s actions apply to deals closed today or after today.
Here’s a better idea, lower the corporate tax rate to a competitive level. Not only will it stop inversions but it will draw some overseas companies and jobs to America.