WASHINGTON (Sputnik) — The Obama administration is taking new measures to limit corporate tax inversions, a process where companies reincorporate in overseas "tax havens" to avoid paying higher taxes in the United States, Treasury Secretary Jacob Lew announced in a conference call with reporters.
"Some companies are serial inverters. They acquire multiple US firms in stock-based transactions over a short period of time. This increases their size and reduces the negative tax consequences of a subsequent inversion," Lew said on Monday.
Lew noted the new measures will take away a significant amount of the tax benefits of inversion and make inversion more difficult.
Earnings-stripping is a process where the US-based subsidiary of a nominally foreign company takes a loan from the parent company and deducts the interest payments from its taxable income.
The United States has a unique tax policy in that it imposes the high corporate taxes on foreign subsidiaries of US-based companies in addition to a 35 percent tax rate on the parent company. Incorporating in a foreign country is one way for corporations to pay lower overall taxes, even if they have subsidiaries in the United States.
On Monday, the White House praised the new measures, which it said will discourage companies from taking advantage of tax loopholes. The Obama administration called on Congress to enact new business laws with specific anti-tax inversion provisions.