The U.S. Treasury has taken steps to stop tax inversions, the process by which a U.S. company acquires a foreign firm and moves abroad in order to reduce its tax bills. In recent weeks, large companies including Burger King and Medtronic have revealed that they are pursuing inversions, drawing the ire of the Obama administration and Congress.
The Treasury’s new rules, announced late Monday, make inversions harder, and eliminate some of the financial benefits associated with the process. The Treasury moved to close a loophole that facilitates “hopscotch loans,” which allow corporations to gain access to their accumulated foreign earnings without paying U.S. taxes for that access, as is typically legally required.
“The Treasury notice, almost entirely, is directed toward preventing that from happening,” said Robert Willens, president of Robert Willens LLC, a tax accounting and consulting firm.
Treasury Secretary Jacob Lew has admitted that the new rules won’t end inversions altogether, and called on congress to take action. Congress has made unsuccessful attempts in the past to limit inversions.
“The problem is, every time Congress does something, firms find a new way to take advantage of becoming a foreign firm and reducing their U.S. taxes,” said Roberton Williams, a Senior Fellow at the Urban Institute’s Tax Policy Center.