The Treasury Department issued a report to Congress on three international tax issues: U.S. earnings-stripping rules, transfer-pricing rules and the misuse of tax treaties.
The earnings-stripping study focuses on excessive payments of deductible interest by foreign-controlled U.S. corporations to related persons in whose hands that interest is partially or fully exempt from U.S. tax. The study notes that strong evidence exists of earnings stripping by foreign-controlled domestic corporations that have undergone so-called "inversion" transactions, in which the U.S. parent company of a multinational corporate group is replaced with a foreign parent in a low-tax or no-tax country.
The transfer-pricing study examines the shifting of income from the United States through transactions between related parties. The study indicates that the rules must be continually monitored to prevent income shifting from non-arm's-length transfer pricing.
The study on U.S. income tax treaties discusses the need to prevent third-country residents from inappropriately obtaining the benefits of U.S. income tax treaties, in particular by achieving inappropriate reductions in U.S. withholding taxes. In recent years, the study noted, interest payments have surged from foreign-controlled U.S. corporations to related parties in countries that are party to a U.S. tax treaty.
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