(Bloomberg) The U.S. Treasury Department took fresh steps on Thursday to curb tax avoidance by multinational corporations, issuing new curbs on a loophole through which companies artificially use credits for foreign taxes they pay to improperly lower their U.S. tax bills.
Treasury officials said they would disallow corporations from using foreign tax credits unless the companies actually bring home to the U.S.—or repatriate—the overseas earnings on which they’ve paid the foreign taxes. Repatriation triggers the 35 percent U.S. corporate tax rate, one of the highest in the world—and foreign tax credits can reduce or eliminate it. Treasury officials are worried that companies are claiming artificially inflated foreign tax credits tied to offshore money they haven’t brought home.
Treasury’s announcement comes a little more than two weeks after European regulators ordered Ireland to collect $14.5 billion in back taxes from Apple Inc. The European Commission found that the country granted the iPhone maker a special tax deal that violated state-aid rules. Apple and Ireland have said they’ll appeal that finding, but the case—and other European Commission state-aid probes into the tax arrangements of companies like McDonald’s Corp. and Amazon.com Inc.—have put foreign tax credits back in the spotlight.
U.S. officials have grown increasingly concerned that more than $2 trillion in offshore earnings that U.S. multinationals haven’t yet repatriated is now fair game for European countries.
Mark J. Mazur, Treasury’s assistant secretary for tax policy, said new guidance would close “another tax loophole that contributes to the erosion of our tax base.”
“Today’s action protects the U.S. tax base by ensuring that such credits are only available when corporations repatriate their foreign earnings,” Mazur said.
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