By David Morgan | WASHINGTON
U.S. regulations, proposed by the Treasury to crack down on companies that try to reduce taxes by rebasing abroad, have begun a White House review and could be finalized shortly, officials said on Tuesday.
The regulations, which would make it difficult for U.S. business operations to avoid taxation while shifting profits overseas through a practice called “earnings stripping,” were received by the White House Office of Management and Budget (OMB) last week. The agency has up to 90 days to decide whether the rules should be finalized or returned to Treasury for further consideration.
“We are satisfied we have addressed stakeholder feedback and are close to issuing final earnings stripping regulations,” a Treasury spokesperson said.
The Obama administration has faced widespread criticism from the business community over its regulatory assault on tax inversions, which are tax-driven mergers in which a U.S. company acquires a smaller, foreign business in a low-tax country and shifts its headquarters there, if only on paper, to avoid higher U.S. taxes.
Business and industry groups have threatened lawsuits and called for the new rules to be withdrawn or heavily revised because of what critics say is the potential for unintended harm to business. Members of Congress have also accused the administration of overstepping its legal authority.
Earnings stripping occurs when an inverted company eludes U.S. taxes on its domestic operation by shifting profits overseas in the form of tax-deductible interest payments to its foreign parent. The new rules would change certain interest payments into equity dividends, which are not tax deductible in the United States.
The regulations were proposed in April, along with a temporary rule to prevent serial inversion deals by foreign companies. That rule, which is already the target of a lawsuit, has not yet been forwarded to OMB.
(Reporting by David Morgan; Editing by Cynthia Osterman)