The United States Treasury Department will come down hard on those companies that avoid paying taxes by moving their working headquarters overseas.
Treasury is going to employ a less lenient attitude towards corporate tax inversions from now on. Jacob Lew, Treasury Secretary, says the new regulations will help close one of the biggest corporate loopholes in the American tax code.
Some companies in the U.S evade taxes by buying companies abroad, then changing the U.S Company’s citizenship to avoid paying taxes. This practice is called tax inversion.
One of the new regulations will make it harder for a smaller company that has its headquarters overseas to take over a larger company that has its headquarters in the U.S. The only way this can take place is if the U.S Company owns less than 80% of the new company overseas. The merger will be possible, but the only difference is that now, companies will have to pay more taxes.
Hopscotch loans will be taxed in the United States as a part of the regulations. In the past, companies avoided paying taxes on dividends by distributing the money made by making a loan to a foreign company.
It seems that the Treasury department is barely giving out details on the new regulations. This can be a way to put companies on notice. Those deals that will close after the announcement was made will be subjected to the new tax regulations.
There have been some high profile mergers in the works. Burger King is about to be acquired by Canadian company Tim Hortons, and Siemens is going to buy Dresser-Rand. Both of these deals will be monumental. The U.S Treasury Department will only focus on those companies that are being acquired by foreign companies for the purpose of tax evasion.
Mergers are not a bad thing for the economy; they can actually bring money to the U.S economy. The problem is when mergers are used to avoid paying taxes.