US Tax Inversion Planners respond to Treasury Measures
The non-legislative measures put forward by the Treasury Department on September 22, to deter multinationals from using corporate inversions to move their tax residence abroad and move away from the high United States tax rate, have so far produced a mixed bag of results.
The measures are aimed at preventing the methods by which inverted companies access a foreign subsidiary’s unrepatriated earnings while continuing to defer US tax, and, in particular, at stopping “hopscotch” lending, whereby low-interest loans skip over that subsidiary’s US parent to go directly to a foreign company.
However, while Treasury has succeeded, for example, in making Medtronic Inc’s USD42.9bn deal to acquire Dublin-based Covidien Plc, and move its tax residence to Ireland, more expensive, it has not stopped the transaction.
Another US healthcare corporation, Salix Pharmaceuticals, has announced that it will pull out of its planned inversion with the Irish subsidiary of Italian company Cosmo Pharmaceuticals SpA, despite having to pay a USD25m termination fee.
REITS have been touted as an alternative to inversions. They do not pay corporate tax as long as at least 75 percent of their total assets are “real estate assets” and/or cash; at least 75 percent of gross income come from real estate-related sources; and at least 90 percent of their taxable income is distributed to shareholders annually in the form of dividends.
The possibility of using a REIT to reduce a company’s tax rate has increased since the Internal Revenue Service began, over the last year, to accept more non-traditional real estate assets as qualifying for inclusion in such trusts.
Source: taxnews- US Tax Inversion Planners respond to Treasury Measures
