(Recasts, adds quotes by Lew, details and background)
By David Morgan
WASHINGTON Oct 13 The Obama administration, in
its latest bid to prevent American companies from minimizing
U.S. taxes by rebasing abroad, issued final rules on Thursday to
combat a key tax-reduction technique known as earnings
Six months after proposing the regulations, the U.S.
Treasury made good on its pledge to move swiftly against
corporate tax inversions by rolling out the new final rule,
despite opposition from business groups and from Republicans in
Congress who demanded a delay only last week.
"For years, this administration consistently has called for
comprehensive business tax reform to fix our broken tax system,"
Treasury Secretary Jack Lew told reporters. "In the absence of
congressional action, however, it is Treasury's responsibility
to use our authority to protect the tax base."
Business lobbyists said the rules would likely be challenged
Tax inversions occur when a U.S. company is acquired by a
smaller foreign business from a low-tax country and adopts its
domicile to reduce the combined firm's overall U.S. tax burden.
Inversions have occurred since the 1980s, but a new wave in
recent years prompted the Treasury to take a series of actions
including Thursday's final regulations, which were unveiled in
April as part of a package that led to the collapse of a $160
billion merger deal between U.S. drugmaker Pfizer Inc
and Ireland's Allergan Plc.
Treasury also imposed a temporary rule in April to prevent
foreign companies from engaging in serial inversions. That is
expected to be finalized later this year.
Earnings stripping occurs when the U.S. subsidiary of a
newly inverted company avoids taxes on domestic operations by
sending them overseas as tax-deductable interest payments.
The newly finalized regulations would reclassify some forms
of debt as equity, changing tax-exempt interest payments into
dividends that are taxed.
Business groups including the U.S. Chamber of Commerce have
warned that the regulations could harm the cash management
operations of U.S.-based multinationals and pose damaging
unintended consequences for a range of businesses by creating
mountains of red tape.
But Treasury officials said the final rules addressed those
concerns by granting exemptions for regulated financial and
insurance firms, cash pooling, short-term debt, transactions
between the foreign units of U.S. companies, stock acquisitions
for employee compensation plans and other operations.
The regulation also relaxed requirements for companies to
document intercompany loans and delayed the documentation
deadline for a year to Jan. 1, 2018.
(Reporting by David Morgan; Editing by Meredith Mazzilli and