Alliance of Good-Governance Groups Submits Comments in Support of Rules Combating Earnings-Stripping

WASHINGTON, D.C. — In comments submitted to the U.S. Department of the Treasury on Monday, good government watchdogs called on the administration to protect a recent safeguard aimed at combating offshore tax avoidance.  The Financial Accountability and Corporate Transparency (FACT) Coalition — a non-partisan alliance of more than 100 state, national and international organizations working toward a fair and honest tax system that addresses the challenges of a global economy and promoting policies to combat the harmful impacts of corrupt financial practices — urged the agency to strengthen the measure that curbs a practice called ‘earnings-stripping’.  The rule is known formally as the Final and Temporary Regulations under Section 385 on the Treatment of Certain Interests in Corporations as Stock or Indebtedness (T.D. 9790; 81 F.R. 72858).

The letter from the FACT Coalition reads:

“The corporate tax avoidance practice known as earnings-stripping has undermined the honesty and fairness of our tax code by allowing multinational corporations to artificially shift income from jurisdictions with a typical tax system to jurisdictions that are tax havens. Earnings-stripping allows foreign multinationals to shift income out of their U.S. subsidiaries by loading up their U.S. subsidiary with excessive amounts of debt and then transferring income out of the U.S. through interest payments to low- or zero-tax foreign jurisdictions. This practice is one of the most significant incentives behind the recent slew of inversions because it gives foreign or inverted companies a huge tax advantage not available to U.S.-owned corporations.

“Using its broadly granted authority under Section 385, Treasury has appropriately proposed to restore some honesty to cross-border transactions by curbing the incentive for companies to use intercompany debt to artificially shift their income.

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“Given the scope of the tax avoidance problem, the 385 regulations should be strengthened, rather than weakened or repealed.”

The full letter can be downloaded here.

The letter was submitted in response to IRS Notice 2017–38, which identified eight measures that would be reviewed and asked for comments on those safeguards.  Notice 2017–38 was issued following Executive Order 13789, signed by the president on April 21, 2017, which called for a review of all tax rules issued after January 1, 2016.

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Journalist Contact:

Clark Gascoigne, Deputy Director
+1 202 813-0290
cgascoigne@thefactcoalition.org

Notes to Editors:

• Click here for an online version of this statement.