Obama Just Doesn't Get It - Treasury further screws up Tax Inversions Law

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Treasury Takes a Modest Step on Inversions
By Victor Fleischer
September 23, 2014

The Treasury Department’s notice of proposed regulations to curb so-called inversions is smart and narrowly tailored. The new rules would take away some — but not all — of the reasons that a company might want to give up United States citizenship.

Indeed, most proposed inversions are likely to go forward, especially those that make sense as a business matter above and beyond the tax benefits, some of which the new rules will curtail.

Companies still searching for a suitable foreign merger partner will find it harder make a match. And in some cases, the loss of tax benefits will mean the search is not lucrative enough to be worth the bother.

Under current law, inversions require merging with a foreign company, with a new “inverted” foreign company becoming the parent company of the combined operations.
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Avoid United States tax on past foreign earnings

Inversions are also motivated by a desire to repatriate deferred foreign earnings without paying tax. This is perhaps the most practically significant portion of the proposed regulations because the new rules would take away much of the motivation for inverting for companies, like Medtronic, with a lot of overseas cash. The regulations seek to end so-called hopscotch loans, where inverted companies gain access to previously untaxed foreign earnings, and certain other actions that move earnings out from under the United States tax base.

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