The United States Treasury Department has issued new rules to discourage American companies from shifting their ownership abroad to avoid paying their fair share of taxes.
The new regulations designed to limit the ability of companies to seek refuge in lower tax countries through so-called "corporate inversions," in which a US company acquires a foreign company and becomes that firm for tax purposes.
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"These transactions erode the US tax base, unfairly placing a larger burden on all other taxpayers, including small businesses and hardworking Americans," Treasury said in a statement.
The statement added that the regulator encourages "genuine" cross-border mergers that help bolster the US economy and enable American companies to operate in foreign nations, but it draws a line when the move comes down to tax-benefit purposes.
The new rules, effective immediately, will reduce the tax benefits available to companies that have inverted.
Also, it will make it harder for companies to move overseas in the first place by tightening the ownership requirements they must meet.
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By GlobalData"This action will significantly diminish the ability of inverted companies to escape US taxation," Treasury Secretary Jacob Lew said.
He added that for some companies considering inversions, the new measures would mean inverting would "no longer make economic sense."
President Barack Obama said the Treasury Department’s steps would "discourage companies from taking advantage of corporate inversions – moving their tax residence overseas on paper to avoid paying their fair share in taxes here at home."
