Regulatory vs. Legislative: Confused about what’s going on in the world of inversion? The latest installment of Tax Hot Topics explains how the U.S Treasury, the Obama administration and Capitol Hill are responding. More at: http://gt-us.co/1oHHxFs

1. Treasury Secretary Jacob Lew
said this week that the Obama
administration is considering
administrative options to curb
inversions. The comments mark
a significant shift from just a
few weeks ago, when Lew said
he didn’t believe Treasury had
the power to address inversions
without legislation.
The announcement came just hours after Senate
Democrats wrote to Lew asking Treasury to take
immediate administrative action to curtail the tax
benefits U.S. companies receive for merging with
offshore companies and reorganizing as foreign
entities. The Democratic pressure was spurred at least
in part by an article from former Treasury Deputy
Assistant Secretary Stephen Shay, who argued
that Treasury is already authorized to limit the tax
benefits of inversions. Shay said Treasury could
write regulations under Section 385, Section 956 or
several other sections to limit expatriated entities’ use
of inter-company debt to strip earnings out of the
United States.
Treasury said it’s reviewing a broad range of actions
that could either limit companies’ ability to engage in
inversions or reduce the tax benefits after inversions
take place. Lew’s comments may also be intended to
use the threat of regulatory action to curb the slew of
recent inversion transactions. He told The New York
Times he wants to “change what’s happening [by]
putting companies on notice.”
Lew acknowledged that the best way to address the
growing trend of U.S. companies’ inversions would be
through comprehensive tax reform with specific anti-
inversion proposals. Congress has left for the August
recess, but inversions continue to be a hot issue for
lawmakers. House Ways and Means Committee
ranking minority member Sander Levin, D-Mich.,
unveiled a proposal that would limit the benefits of
earnings stripping by changing Section 163(j) and
Section 956. Senate Finance Committee member
Chuck Schumer, D-N.Y., has said he intends to write
legislation to limit interest deductions and prevent
earnings, similar to proposals the administration has
offered in the budget.
Treasury secretary willing to consider
regulatory response to inversions
administrative
options to
curb inversions

2. Treasury secretary willing to consider regulatory response to inversions
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Finance Committee Chair Ron Wyden, D-Ore., has
expressed support for legislation that would strengthen
the anti-inversion rules in Section 7874 retroactively
from May. But so far, Finance Committee ranking
minority member Orrin Hatch, R-Utah, is one of
the few Republicans to express any openness to enact
legislation on inversions outside of tax reform. Hatch
said he would consider legislation only if it is revenue
neutral and not punitive or retroactive.
Republicans and Democrats appear to have little
common ground on the issue for now, and the
upcoming elections and short legislative calendar make
action an uphill battle. The issue has garnered the
interest of lawmakers on both sides of the aisle, though,
and it will likely help drive for future tax reform.
Contact
Mel Schwarz
Partner, Washington
National Tax Office
Grant Thornton LLP
T 202.521.1564
E mel.schwarz@us.gt.com