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Will Treasury play hardball with inversions?

By Richard Rubin, Bloomberg

July 28, 2014 • Reprints

The U.S. Treasury Department should use immediate stopgap regulations to make offshore transactions known as corporate inversions less lucrative, said the department’s former top international tax lawyer.

The administration can unilaterally limit inverted companies from taking interest deductions in the U.S. or from accessing their foreign cash without paying U.S. taxes, Stephen Shay said in an interview and in an article published today in Tax Notes.

“If you take away the incentives, a large portion of these deals would not happen because they are indeed tax-motivated,” said Shay, who left the Obama administration in 2011 and is now a professor at Harvard Law School.

Companies including Medtronic Inc. and AbbVie Inc. have pending inversion transactions in which they would purchase a smaller foreign company and then move the combined corporation’s legal address outside the U.S. In most cases, companies barely change their operations and don’t move their executives.

The administration has been pressing Congress for retroactive action to make it harder for companies to invert and insisting that Treasury can’t act on its own.

‘Doing More’

The administration has studied a lot of “obscure provisions” and has concluded it doesn’t “have the authority to address this inversion question through administrative action,” Treasury Secretary Jacob J. Lew said on CNBC July 16. “If we did, we would be doing more.”

There doesn’t seem to be administration support for unilateral action, Henrietta Treyz of Height Securities LLC wrote in a note to clients today.

“It is not clear that the administration would attempt what Shay is describing,” she wrote.

Congress is deadlocked on the issue and is set to leave Washington late this week for a five-week recess.

“Our tax system should not reward U.S. companies for giving up their U.S. citizenship, and unless we tackle this problem, these transactions will continue,” Lew said in an article in the Washington Post published yesterday. “I call on Congress to close this loophole and pass anti-inversion legislation as soon as possible.”

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Congress 1894Barack Obama 909Obama administration 333U.S. Treasury Department 75Jacob J. Lew 56the Washington Post 43Charles Schumer 28University of Houston 19AbbVie Inc. 16Democrats 16Medtronic Inc. 10Harvard Law School 7Covidien Plc 4inversions 2Venable LLP 2Height Securities LLC 1Henrietta Treyz 1Bret Wells 1Charles Kolstad 1Stephen Shay 1

Free Newsletter Modern Trader Follow

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