In an effort to crack down on companies relocating outside the US for tax benefits, the US Department of the Treasury and the Internal Revenue Service issued its first steps on a targeted approach to reduce the tax benefits—and when possible, stop—corporate tax inversions.
The department said this strategy of inversion has recently increased. According to the department, this technique is described as when a US-based multinational company restructures so that the US parent company is replaced by a foreign corporation to avoid US taxes.
“These transactions erode the U.S. tax base, unfairly placing a larger burden on all other taxpayers, including small businesses and hardworking Americans,” the department said.
US President Barack Obama’s fiscal year 2015 budget includes legislative plans to reduce inversion incentives as well as make it more difficult to complete an inversion.
“These first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether,” said Treasury Secretary Jacob Lew. “While comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the recent surge of inversions, we cannot wait to address this problem.”
The treasury department said it will continue to monitor and examine ways to reduce the benefits of inversions.
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