WASHINGTON Oct 4 U.S. regulations, proposed by
the Treasury to crack down on companies that try to reduce taxes
by rebasing abroad, have begun a White House review and could be
finalized shortly, officials said on Tuesday.
The regulations, which would make it difficult for U.S.
business operations to avoid taxation while shifting profits
overseas through a practice called "earnings stripping," were
received by the White House Office of Management and Budget
(OMB) last week. The agency has up to 90 days to decide whether
the rules should be finalized or returned to Treasury for
"We are satisfied we have addressed stakeholder feedback and
are close to issuing final earnings stripping regulations," a
Treasury spokesperson said.
The Obama administration has faced widespread criticism from
the business community over its regulatory assault on tax
inversions, which are tax-driven mergers in which a U.S. company
acquires a smaller, foreign business in a low-tax country and
shifts its headquarters there, if only on paper, to avoid higher
Business and industry groups have threatened lawsuits and
called for the new rules to be withdrawn or heavily revised
because of what critics say is the potential for unintended harm
to business. Members of Congress have also accused
the administration of overstepping its legal authority.
Earnings stripping occurs when an inverted company eludes
U.S. taxes on its domestic operation by shifting profits
overseas in the form of tax-deductible interest payments to its
foreign parent. The new rules would change certain interest
payments into equity dividends, which are not tax deductible in
the United States.
The regulations were proposed in April, along with a
temporary rule to prevent serial inversion deals by foreign
companies. That rule, which is already the target of a lawsuit
, has not yet been forwarded to OMB.
(Reporting by David Morgan; Editing by Cynthia Osterman)