Treasury Department officials have started taking steps to ease a tax rule issued during former president Barack Obama's administration aimed at preventing American companies from moving money offshore to avoid US taxes.
Treasury issued final regulations eliminating documentation requirements that were part of the Obama-era rules. The department also announced its intention to propose regulations in the future that alter other portions of the offshore tax rules.
The instructions mark a change in U.S. tax policy that has in recent years focused on imposing stricter rules on American corporations using complex transactions to move money overseas to skirt taxes.
Rules preventing the offshoring of corporate profits should be strengthened, not weakened"
The Treasury Department said the regulations, implemented in the final months of Obama's administration, are no longer necessary because of the 2017 tax law enacted under president Donald Trump.
Treasury Secretary Steve Mnuchin, a former Goldman Sachs executive, said in a statement that the 2017 GOP tax law rendered Obama-era rules against offshore tax avoidance "obsolete" by significantly reducing the corporate tax rate.
"Because tax cuts made our business environment more competitive, we are now able to remove regulatory burdens that have been rendered obsolete, further reduce costs for job creators and hardworking Americans, and protect the U.S. tax base,"Mnuchinsaid.
Treasury's regulations address rules preventing American firms from lowering their US tax bills by shifting income to offshore related companies, loaning that money back to their domestic companies, and then deducting the interest off their Internal Revenue Service bills.
Sen. Ron Wyden , the top Democrat on the Senate Finance Committee, warned that the Treasury Department's plan "only provides an opening for corporations to again dodge their taxes."
"The corporations that got a massive taxpayer handout are getting another gift from Donald Trump," said Wyden. "The Obama administration had essentially shut down inversion transactions whose only purpose is to help big multinational corporations move overseas to avoid paying taxes."
"Rules preventing the offshoring of corporate profits should be strengthened, not weakened," he added.
According to Bloomberg, the Treasury Department's proposal, detailed in a policy guidance, "could make it easier for firms to use accounting tactics to minimize their U.S. earnings and inflate their foreign profits, which are frequently taxed at rates lower than the current 21 percent domestic corporate levy."
"The existing regulations were aimed at stopping American companies from moving their headquarters to a lower-tax country, a process known as a corporate inversion," noted Bloomberg.