Treasury cracks down on tax inversions. Is it allowed to do that?

The Treasury Department is moving to close loopholes that allow US companies, like Burger King, to move corporate headquarters overseas for a lower tax bill. But the debate continues over whether Treasury even has the power to limit the practice.

|
Sean Kilpatrick//The Canadian Press/AP/File
A Burger King sign and a Tim Hortons sign are displayed on St. Laurent Boulevard in Ottawa, Canada. The Obama Administration and the Treasury Department are making moves to curb corporate inversions, like Burger King's move to Canada.

While we wait to see how and when the Obama Administration will use its executive authority to curb the use of corporate tax inversions, the debate continues over whether Treasury even has the power to limit the practice. In a new article in Tax Notes, Tax Policy Center senior fellow Steve Rosenthal minces no words:  “Treasury has the legal authority to curb inversions.”

Its main tool:  A provision of a 1969 law that allows the agency to define debt and equity. Citing decades of case law, Steve argues that Section 385 of that statute lets Treasury limit the ability of an inverted firm to treat certain intra-company loans as debt. That practice, known as earnings stripping, makes it possible for the firm to lower its U.S. taxes by deducting interest costs on those loans. Ending these tax benefits would not stop inversions but would make them less financially attractive and could slow deals.

This issue is the subject of heated debate among tax lawyers. Earlier this month, TPC sponsored a panel discussion on inversions following a speech by Treasury Secretary Jack Lew on corporate tax reform. In that discussion, John Samuels, Senior Counsel of Tax Policy & Planning at General Electric Co., insisted that Treasury has no legal authority to slow inversions on its own.

This, of course, is only half the issue. Even if Treasury does have the legal power to curb the practice, there is a separate argument over whether it should use it. And that, as Steve, acknowledges, is a political and policy question for Treasury and the White House to decide.

We’ll know soon enough what Treasury proposes to do about inversions. When we do, the argument will shift to whether it did enough—or too much.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Treasury cracks down on tax inversions. Is it allowed to do that?
Read this article in
https://www.csmonitor.com/Business/Tax-VOX/2014/0923/Treasury-cracks-down-on-tax-inversions.-Is-it-allowed-to-do-that
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe