USA: Additional Actions Against Inversions and Earnings Stripping
The U.S. Treasury and the IRS recently indicated:
“Today, Treasury is taking action to:
· Limit inversions by disregarding foreign parent stock attributable to recent inversions or acquisitions of U.S. companies. This will prevent a foreign company (including a recent inverter) that acquires multiple American companies in stock-based transactions from using the resulting increase in size to avoid the current inversion thresholds for a subsequent U.S. acquisition.
· Address earnings stripping by:
o Targeting transactions that generate large interest deductions by simply increasing related-party debt without financing new investment in the United States.
o Allowing the IRS on audit to divide debt instruments into part debt and part equity, rather than the current system that generally treats them as wholly one or the other.
o Facilitating improved due diligence and compliance by requiring certain large corporations to do up-front due diligence and documentation with respect to the characterization of related-party financial instruments as debt. If these requirements are not met, instruments will be treated as equity for tax purposes.· Formalize Treasury’s two previous actions in September 2014 and November 2015.”
The complete document is available here (see pages 23-26).
Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, DRTP Consulting Inc.
514-742-8086; robertrobillard “at” drtp.ca
www.drtp.ca
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