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Trump Administration Looks to Weaken Corporate Tax Avoidance Rules

Trump Administration Looks to Weaken Corporate Tax Avoidance Rules

In a noteworthy move, US Treasury has announced it will weaken the regulations set in place by the Barack Obama administration to prevent US multinational companies from moving their profits abroad to avoid paying taxes in the US.

According to the Treasury Department, these regulations are no longer required following the ratification of Trump’s 2017 tax reform.

As reported by Bloomberg Tax, US Treasury plans to “repeal a part of the rules that automatically re-characterize tax-deductible loans as taxable stock if a U.S. company is receiving loans from and distributing cash to a foreign branch within a 72-month window.” 

US Treasury Secretary Steven T. Mnuchin said, “Because tax cuts made our business environment more competitive, we are now able to remove regulatory burdens that have been rendered obsolete, further reduce costs for job creators and hardworking Americans, and protect the U.S. tax base.”

The Treasury Department also plans on terminating the rule establishing that US companies must report loans between company branches to the country’s tax authority.

According to Bloomberg Tax, this proposal would “make it easier for firms to use accounting tactics to minimize their U.S. earnings and inflate their foreign profits, which are frequently taxed at rates lower than the current 21% domestic corporate levy.”

Furthermore, this removal, states the rules, “may increase the propensity for foreign acquisitions and ownership of U.S. assets that are motivated by tax considerations, rather than economics.”

Opposing Views on US Treasury’s Weakening of Anti-Inversion Rules

Plenty of pundits shared their views on the proposed scale back of Obama’s 2016 rules.

Senate Finance Committee Chairman Charles Grassley welcomed this proposal by the Treasury Department.

Grassley said, “The 2017 tax reform bill, with a reduced corporate tax rate and enhanced tax base-protections, has worked to substantially reduce the incentives for American companies to relocate offshore and has encouraged companies to come back to the United States.”

“It makes sense in today’s tax environment for Treasury to reconsider those regulations," Grassley concluded.

Nancy McLernon, who heads the Organization for International Investment, concurs with Grassley.

“By potentially removing these overly-burdensome regulations that have hurt U.S. economic competitiveness, the administration is taking a major step forward,” she told the Wall Street Journal.

Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy, however, believes the Trump administration should be a bit more cautious with this mood, as the Democrats are looking to upend Trump’s 2017 tax reform.

Gardner said, “There is every reason to ask whether two or three years down the road that they might need these.”

Additionally, Ron Wyden, a Democrat Senator who heads the Senate Finance Committee, believes these rules need strengthening rather than weakening.

Wyden said: “The corporations that got a massive taxpayer handout are getting another gift from Donald Trump. The Obama administration had essentially shut down inversions — transactions whose only purpose is to help big multinational corporations move overseas to avoid paying taxes. Weakening these rules only provides an opening for corporations to again dodge their taxes.”

What are your thoughts on this move by the Trump administration?