By Jessica Schieder, Center for Effective Government
The Department of the Treasury and the Internal Revenue Service (IRS) acted last week to make corporate inversions more difficult for companies looking to swap their American address for a lower tax rate.
Corporate inversions allow U.S. corporations to register as a foreign corporation in order to lower the taxes they owe. But the transaction occurs largely on paper— meaning the location of many of a company’s employees, the markets the company serves, and the products themselves are unlikely to change significantly.
Because inversions can be exploited for tax reasons, the Department of the Treasury has issued new rules making it harder for U.S. corporations to escape tax restrictions when merging with foreign corporations in countries where they lack substantial business.
Treasury Secretary Jack Lew said, “These actions further reduce the benefits of inversion and make these transactions even more difficult to achieve.”
The IRS is also expected to announce regulatory changes to make it more difficult for corporations to exploit inversions to avoid paying taxes. One provision would potentially increase the amount of taxes companies pay when they invert, meaning companies that had been deferring paying taxes on offshore profits would have to settle a higher bill when they invert.
U.S. companies depend on American roads and bridges, workers educated in American schools, tax breaks, and direct access to American consumers—the largest consumer market in the world. Corporations that happily take advantage of these resources but then seek to avoid paying their fair share of taxes are short-changing the American people.
For Further Reading:
IRS Calls on Coca-Cola to Pay Up, The Fine Print, 10/26/2015
Will Justice Prioritize Corporate Wrongdoers?, Fine Print, 9/24/2015
Developing Nations Push Corporations to Pay Their Fair Share, The Fine Print, 7/23/2015