IRS Continues Focus on Corporate Inversions
By Justin E. Hobson
The Internal Revenue Service (IRS) continues its focus on perceived abuses in corporate inversion transactions. On November 19, the IRS released Notice 2015-79, which places new limitations on the ability of a U.S. multinational corporation to reduce its U.S. tax burden by inverting its corporate structure. U.S.-based multinationals are subject to U.S. federal income taxes on their worldwide net income. Subject to certain exceptions, a U.S. multinational’s foreign subsidiaries generally are not subject to U.S. income tax on their earnings, and the U.S. parent is not subject to tax on the earnings until they are repatriated. Many U.S. multinationals are criticized for indefinitely holding income in foreign subsidiaries so that this income is never subject to U.S. tax. A recent article from Citizens for Tax Justice analyzed the financial statements of Fortune 500 companies and determined that “more than $2.1 trillion” of earnings is subject to “indefinite reinvestment,” representing “up to $600 billion in U.S. federal income taxes” that is not intended to be paid.
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