Treasury Announces Steps To Reduce Corporate Tax Dodges

Transcript

STEVE INSKEEP, HOST:

President Obama's administration is taking new steps against companies that take their headquarters overseas along with more of their profits. The administration wants to crack down on what's called tax inversion, as NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: Inversions are still rare, but they're on the increase. In recent months some major U.S. companies, such as Medtronic and Burger King have announced plans to merge with foreign companies and move their legal headquarters overseas.

U.S. TREASURY SECRETARY JACOB LEW: These transactions may be legal but they're wrong and our laws should change.

ZARROLI: U.S. Treasury Secretary Jacob Lew said yesterday that Congress had failed to address the issue. So the Obama administration was announcing some new rules meant to discourage inversions.

LEW: This action will significantly diminish the ability of inverted companies to escape U.S. taxation. For some companies considering deals today's action will mean that inversions no longer make economic sense.

ZARROLI: The new rules will tighten the ownership requirements for U.S. companies seeking to do inversions. They will also make it harder for companies to avoid U.S. taxes on their foreign income, once they've completed an inversion. Lee Sheppard, contributing editor of Tax Notes says the measures strike at the heart of why companies pursue inversions.

LEE SHEPPARD: We expected some bagging around the edges but this is not around the edges, this goes to fundamental stuff. You know fundamental goals that you had for your foreign earnings when you did your inversion.

ZARROLI: The new rules are likely to face some legal challenges. Congressional critics say inversions may be a bad thing, but they say they happen because the U.S. corporate tax rate is too high. And they say the problem needs to be addressed as part of comprehensive tax code reform. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.