The Internal Revenue Service and the Treasury are seeking to take action against the issue of tax inversions, where a company purchases a foreign firm to switch its tax domicile to a country with lower tax rates. This has been a major policy stressed by President Barack Obama saying, "While there is no substitute for Congressional action, my Administration will act wherever we can to protect the progress the American people have worked so hard to bring about."
In the new measures brought out by the Treasury, they are seeking to reduce the benefits inversions. Treasury Secretary Jack Lew said that the administration is lobbying for congressional action to finally address the issue.
According to Lew, " The 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. While comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the surge of inversions, we cannot wait to address this problem."
The Treasury said that they wanted to ensure that tax inversions will become "economically unfeasible" for companies.
The Treasury issued a formal notice last Monday that they will prevent any inverted company from transferring property or cash from a controlled foreign corporation to the mother company to prevent paying taxes to the United States.
It will also be more difficult for the entities in the United States to invert my making the requirements harder - previous owners of the U.S. entity should own less than 80 percent of the new entity.
With the new measures, Treasury aims to prevent further inversions formed after the notice was released. This will hopefully help promote economic growth as companies will be paying the correct amount of tax in the United States.
