The President said tax avoidance is a massive global problem, and this Treasury move to curtail corporate tax inversions will help make sure companies pay their fair share of taxes.
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First, they go after what they call “serial inverters”, companies that have engaged in multiple inversion transactions. He said the US and other countries should “lead by example” in closing loopholes and provisions.
Some of the new rules will make it more hard for companies to invert and reduce their opportunities to “strip” their earnings. The deals have become increasingly common among pharmaceutical companies.
The US corporate tax rate is over 30%.
The practice is a tax dodge employed by major American companies.
President Obama on Tuesday said Treasury’s action was necessary to stem what he called the most insidious tax loophole out there. The Treasury’s newest regulations, however, could complicate that merger.
The president praised Treasury Department’s efforts to prevent corporations benefitting from the process called inversion, but stressed that only Congress can close such deficiencies.
On Monday, the US Treasury tightened rules against “inversion” deals, in which US companies merge with foreign firms to move their official address offshore – but not their US operations – to avoid paying US taxes. “When multinational corporations exploit these loopholes – enjoying the many benefits of locating in the United States without responsibly paying into the system – it erodes the American tax base, undercuts businesses that play by the rules and ultimately leaves the middle class and small businesses to pay the tab”.
Allergan shares fell $41, or 14.8 percent, to close Tuesday at $236.55 in NY, below their price of $271.57 on October 26, before reports that the two drugmakers were in talks about a deal.
The Treasury’s new rule imposing a three-year limit on foreign companies bulking up on USA assets to avoid ownership rules for future inversions would exclude these three deals from the Pfizer transaction.
The Treasury Department announced Monday that it will place new restrictions on inversions, including how earnings are distributed and the tax rates placed on profits.
“A lot of it’s legal, but that’s exactly the problem”, Obama said.
Speaking at the White House, he said: “In the news over the last couple of days, with this big data dump coming out of Panama, we have had another reminder that tax avoidance is a big, global problem”.
“The administration continues to tinker along the regulatory edges with unilateral proposals to address the symptoms of inversions, but not the disease”, Mr. Hatch said. When big multinationals pay less in taxes, the rest of us have to pay more.
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I struggle to blame companies who use a loophole that is on the books, but wouldn’t mind seeing it shut through congressional action.
