September 26, 2014
(Editor’s Note: This post is an excerpt from an article appearing in Practitioner Insights on WestlawNext)
The U.S. Department of Treasury and the Internal Revenue Service recently issued a notice that takes targeted action to stop the controversial practice of corporate tax inversions. The new measures adopted by the agencies aim to reduce the tax benefits available to companies that reincorporate in foreign jurisdictions.
Corporate inversions have increasingly drawn the scrutiny of federal regulators and politicians in recent months. Critics of high profile inversion attempts, including those at companies such as Chiquita Brands International Inc. and Burger King Worldwide Inc., claim that these companies are merely seeking to dodge U.S. corporate taxes.
Prior to the most recent notice, three separate pieces of anti-inversion legislation have been introduced this year. While the timetable for the implementation of these anti-inversion bills is unpredictable, the recently issued notice is effective immediately.
The Treasury and IRS stated that their latest actions will “significantly diminish the ability of inverted companies to escape U.S. taxation.” This will be achieved through the elimination of certain techniques that inverted companies currently use to access the overseas earnings of their foreign subsidiaries.