23rd Sep 2014 05:29
Washington (Alliance News) - The US government Monday announced a crackdown on US companies that use mergers and takeovers to move their headquarters to countries with lower taxes.
US Treasury Secretary Jacob Lew said the practice, known as corporate inversion, was an "unfair loophole" that puts a larger tax burden on all other taxpayers, including small businesses.
The most recent such case was the US hamburger chain Burger King, which in August announced its purchase of Canadian doughnut chain Tim Hortons and said it would move its headquarters to Canada.
The new rules - including a ban on companies using foreign cash without paying US taxes - would apply to deals that close starting Monday, Lew said, according to Bloomberg news agency.
Lew said they were a stop-gap measure until Congress reconvenes after November elections to consider more far-reaching steps that the Obama administration backs.
"This action will significantly diminish the ability of inverted companies to escape US taxation," he said. "For some companies considering deals, today's action will mean that inversions no longer make economic sense."
But he made clear that the clampdown was not aimed at company mergers driven for other reasons, "such as efficiency or expansion."
"Genuine cross-border mergers make the US economy stronger by enabling US companies to invest overseas and encouraging foreign investment to flow into the US," he said in a statement.
In the Burger King case, managers of both companies insisted the merger was about accelerating growth, not dodging taxes. That deal would create the world's third-largest fast-food chain.
The tax rate charged to Canadian companies is about 26.5%, while the top US corporate income tax rate is about 40%, according to the accounting and consulting firm KPMG.
Copyright dpa