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Top GOP Congressmen Slam Treasury Rule That Drives Businesses Overseas

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Juliegrace Brufke Capitol Hill Reporter
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Top tax-writing Republicans in both chambers of Congress urged Treasury Secretary Jack Lew to rethink the department’s proposed rules aimed at curbing corporate inversions, slamming the regulations for their potential to kill jobs, discourage innovation and deter investment in the U.S. economy.

In Monday letters spearheaded by Senate Finance Chair Orrin Hatch of Utah and House Ways and Means Committee Chairman Kevin Brady, the lawmakers alleged the rules would fail to fully stop earnings stripping while placing additional regulatory burdens on well-meaning American companies.

Earnings stripping is a tactic sometimes used by multinational corporations to lower their tax burden by shifting taxable earnings to offshore headquarters through interest deduction. If the rules are finalized in their current form, certain types of intracompany debt would be considered equity, therefore making it taxable.

“The proposed regulations represent a dramatic departure from current policy and practice, overturning more than a half century of well-established jurisprudence based upon analysis of an instrument’s actual substance,” Brady wrote in the letter signed by 23 GOP House members. “Despite the assertions by Treasury that these regulations are designed ‘to further reduce the benefits of and limit the number of corporate tax inversions, including by addressing earnings stripping,’ the proposed regulations are broadly applicable to a wide array of ordinary business transactions, creating unacceptably high levels of uncertainty and adverse collateral consequences for non-tax motivated business activity.”

The congressmen went on to blast the agency for its push to finalize the 385 regulations at a rapid pace without adequate transparency,  despite both sides of the aisle expressing major concerns over the change. Hatch questioned whether Treasury was acting within executive order or statutory requirements while crafting the proposal.

“Your department has long taken the position that tax regulations are exempt from these transparency requirements because of a secret agreement between the Treasury Department and OIRA (Office of Management and Budget’s Office of Information and Regulatory Affairs). Your department only very recently responded positively to concerns about this secret agreement,” he wrote. “Treasury officials have referenced their ‘special rule’ for tax regulations in recent comments, hinting that the current proposed regulations will not receive a full cost-benefit analysis and will be subject to more limited transparency.  Treasury’s ‘special rule’ works against the goals of transparency and accountability.”

The lawmakers called on the agency to put a hold on finalizing the regulation until a full economic analysis is conducted and their concerns have been addressed.

“I ask you to re-propose the regulations not because I wish for there to not be any section 385 regulations,” He concluded in the letter. “Rather, I am seeking to ensure that, should the Treasury Department issue regulations under IRC section 385, the department does so in a thoughtful, prudent, and legal manner.”

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