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
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