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Goldman Warns "Something Has To Give" On Tax Inversions
Treasury Secretary Lew's comments on tax reform yesterday indicate that in the absence of legislative activity to address the expatriation of US-based companies, the Treasury will lay out its own plans "in the very near future." Goldman interprets this to mean an announcement in the next couple of weeks. While the substance of the Treasury's forthcoming announcement is still unknown, Lew's comments seemed consistent with Jan Hatzius' expectation that the steps the Treasury will announce will be incremental and not enough to fundamentally alter the outlook for these transactions.
Via Goldman Sachs' Jan Hatzius,
Tax-focused activity in Congress is also likely to pick up. Legislation is expected to be introduced in the House and Senate in coming days to reduce the economic incentives for companies to move their tax domiciles. While a vote in the Senate is possible over the next couple of weeks, we continue to believe enactment of legislation on the issue is very unlikely prior to the election. In the "lame duck" session of Congress following the election in November/December, Congress looks likely to pass legislation renewing expiring or expired corporate tax provisions; those bills do not address inversions, but it would not surprise us to see some lawmakers try to raise the issue again in that context.
More generally, we continue to hold the view that "something has to give" regarding corporate tax policy. The less the Treasury is able to address inversions through regulation this year, the more pressure will grow on Congress to address next year. Many lawmakers have said they prefer to address the issue as part of broader tax reform, and next year they will presumably have to at least try to do so. There are plenty of reasons that corporate tax reform legislation might not be enacted in the next two years, but the list of reasons it might be enacted does seem to be growing.
Treasury Secretary Lew's speech today (September 8) at the Tax Policy Center marks the start of what is likely to be a period of increased activity related to corporate tax policy:
Secretary Lew’s comments suggest regulatory changes are forthcoming... Lew’s discussion of tax issues today held few surprises. Regarding inversions, he did not announce any new measures but announced that the Treasury Department, which oversees the IRS, is “completing” an evaluation and that it will “make a decision in the very near future.” We have expected the Treasury to announce changes in its regulatory interpretation of current tax laws regarding inversion-related issues in the next month or so to address certain aspects of inversions. Lew’s comments today suggest such an announcement may be coming sooner than we imagined, with an announcement possible in the next week or two, once it becomes clear that Congress will not enact legislation prior to the election.
...But there is little clarity yet on what the Treasury might do. Over the last six weeks there have been a number of articles written by tax lawyers, former Treasury officials, and other observers about what statutory authority the Treasury has to address the inversion issue without Congress. In general, the options fall into three broad categories: (1) tighten the rules governing which inversion transactions qualify for tax benefits, (2) deny inverted companies the use of certain tax strategies, or (3) deny all foreign-owned US companies the use of certain tax strategies. Our expectation is that the first two options face obstacles: the laws governing inversion transactions do not leave much to interpretation, and most experts are skeptical whether the Treasury could apply tax rules to inverted companies that differ from the rules applied to other companies without instructions from Congress to do so. The third option, to tighten certain rules for all companies, appears to offer the best opportunity for the Treasury to address inversions, presumably by focusing on strategies that mainly inverted companies rely on. One potential area for action could be an attempt to limit companies' use of unrepatriated earnings generated prior to the completion of inversion. Whether the Treasury will attempt to do this, and whether it could implement rules to do this effectively, remains to be seen, but we expect some clarity from the Treasury in the next couple of weeks.
Renewed congressional activity is also likely over the next couple of weeks... Earlier this summer, the legislative debate focused on tightening the rules governing inversion transactions, by requiring that more than half of the ownership of the company needed to change as part of such a transaction, up from 20% currently. The legislative focus has now shifted to limiting the economic benefits of such transactions, similar to the Treasury's apparent focus. Sen. Schumer (D-NY) is expected to introduce legislation this week to limit so-called "earnings stripping" by former US companies, which involves a multinational's US subsidiaries borrowing from and paying tax-deductible interest to the firm's foreign subsidiaries to lower taxable US profits. House Ways and Means Ranking Democrat Sander Levin (D-MI) looks likely to offer legislation targeting the practice as well. Both bills would limit the amount of tax-deductible interest to 25% of a US subsidiary's taxable income (from 50% currently), but the Schumer bill would apply only to inverted companies while the Levin bill would apply to US subsidiaries of all foreign-owned companies. The Levin proposal would also attempt to limit inverted companies' use of untaxed foreign profits, which the Schumer bill does not address. The House of Representatives seems very unlikely to vote on these proposals. By contrast, there is a possibility the Senate could vote on the Schumer proposal in the next couple of weeks, though it is unlikely to have sufficient support to pass in our view.
...and following the November election. Following the November 4 election, Congress returns for a "lame duck" session. One of the key pieces of unfinished business on the agenda at that point will be tax "extenders" legislation to renew expired or soon-to-expire (mostly corporate) tax provisions. While the extenders legislation has little to do with inversions, it is possible that amendments could be offered to address the issue, though we would be surprised if Congress ultimately enacted changes to inversion rules as part of that bill.
In the longer term, it may take tax reform to address inversions. If we are correct that the Treasury will be able to make only incremental changes related to inversions, it is possible that companies could view whatever the Treasury does announce as providing companies with an "all clear" to proceed with additional transactions. Ultimately this seems likely to put the onus on Congress to address the issue. Many congressional Democrats support short-term action on inversions while Congress contemplates longer-term reform. By contrast, many Republicans prefer to let the inversion issue drive action on broader tax reform, which may otherwise fail to gain momentum. Our take is that while tax reform is inherently difficult and our base case is that Congress will not enact reform prior to the next presidential election, events are raising the probability that Congress might manage to reach agreement on some version of corporate tax reform.
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I agree. Rest your head right here for a second motherfucker.
Go ahead, keep fucking with the standard unit of account with which the world trades...
tick tock...
the outsiders club has to stay and pay taxes so the likes of GE can offshore jobs and get multi million dollar refunds every year.
Sweet, so Lack Jew is gonna squeeze corporations for more tax money?
Cause corporations have all this money just by being corporations.
INDIVIDUALS pay tax, nobody else. Corporate taxes are just once laundered consumption taxes.
pods
didn't you hear....corporations are people!
The knife cuts two ways bitches!
“"Something Has To Give" On Tax Inversions”
Why?
Everybody knows taxes are not necessary to the operation of the United States of the Fed.
They are only for social control.
Just go ahead and try to figure out how taxes can even make a dent in the debt they have created.
Easy, ban and nationalize those companies from US markets.
^^^^this. I guess those individuals at the helm (many who also took BAILOUTS) should have kept their mouths fucking shut after all.
Yeah, I've been wondering if the U.S. government can always borrow (and/or print with the help of the Federal Reserve) all of the money that it ever needs or ever will need, than why do they even bother to collect taxes?
Clearly, the national debt is unservicable and will never be paid back anyway, so why do they trouble the good citizens of the U.S. with the need to pay taxes at all? Why not just print up the money and spend without restraint?
People are still people too.
I got a Haitian family to adopt me, dropping my effective tax rate to zero. Kind of hungry though, mud cakes aren't very filling.
Tax reform? Ha ha ha ha ha ha ha ha sorry hahahaha
Aye Captain i'm givin her all she's got, she's gonna blow
REPEAL FATCA
"Renouncing US citizenship is about to get a lot more expensive":
http://news.yahoo.com/renouncing-u-s--citizenship-is-about-to-get-a-lot-...
if "american corporations" are really persons, then as with any American renouncing their citizenship for another country, aren't their assets subject to forfeiture to the US Govmt? And, if not, why not them if us?
So Hatzius is a tax lawyer now too is he? Fuk i am so sick of all these guys. Experts on NOTHING.
Let me get this straight:
Things are so bad, that the state needs to start collecting revenue, from the same group it allowed to help write the rules so they could avoid paying taxes.
Jack Lew?
Isn't he that dood who couldn't pay off his own mortgage, New York University had to come to his rescue and do it for him?
But of course NYU did it gladly, since Lew, in his capacity there, ended collective bargaining of grad student assistants, similar to how Gov. Walker of Wisconsin just ended collective bargaining in that state.
At least Lew has all that money he found when he was head of Citigroup's hedge fund.
2006, Chase, Bank of America, Wells Fargo and Citigroup were worth $5.7 trillion.
2012, Chase, Bank of America, Wells Fargo and Citigroup were worth $7.2 trillion.
Any questions?
For corporations I think that we should try the flat tax. Since they are all supposed to be so equal, just use ONE tax rate for them all, NO DEDUCTIONS. Then base the incomes on the same informations they submit to the public about their revenue. There should NEVER be two sets of books
Wait a minute, wasn't the need for taxes removed because of printing? Face it, taxes were never "representational" so just print up a little bit more funny money
So, should states be allowed to prohibit companies from moving to another state? From one city to another? From one munipal taxing authority to another? That's where this is all heading...
the amount corporations pay in taxes is so piddling they should just abolish the corporate tax altogether and be done with it
The business world has stuggled for three decades to implement globalization of the world economy, to cut out the middle man in the form of government and make markets and business free to operate world wide. It is only natural that low tax nations will attract business headquarters and operating bases. Low cost labor will determine which nations house industry. Low tax and no regulations will attract financial services, like the City of London. The world is open gentlemen, open for business. Why should business, whose purpose is shareholder value and growth, why should they do any business, other than sales, to a giant tax hog imperial war monger state like the USA. The trillion dollar a year cost of spies and armies demands ruthless taxation of private enterprise. The armies and legions of Washington DC employees and the vast armies and navies of Washington call out for billions upon billions of tax collections to fund their world war mentality. I ask the simple question, "What does world scale free enterprise owe to the giant tax machine in Washington DC, seeking to live without work or wealth creation, seeking to leech off of others, and then demand loyalty to their empire?"
I suspect most business across the globe just thinks "Fuck 'em" when Washington cries out for trillions and trillions in tax demands.
"financial services" -- In my opinion Jack, there's your fucking middleman, and yes, fuck em, they can keep their financial "products" of mass destruction. They own D.C. yes, fuck them both, with a damn spit.
'Why should business, whose purpose is shareholder value and growth, why should they do any business, other than sales, to a giant tax hog imperial war monger state like the USA.'
Standing armies?
I guess this means that GS is going to move to The City of London...Maybe Jamie and Blythe will relocate too.
"Many lawmakers have said they prefer to address the issue as part of broader tax reform, and next year they will presumably have to at least try to do so."
the good thing about "next year" ... there will always be a "next year"
fast forward to 2015: blah blah lets wait till 2016 elections and new POTUS blah blah blah
You don't have to eat Canadian Whoppers.
The Gov of the People's Republik of Cal was shocked!! shocked!! that Tesla would pick Nevada over Cal. Hmm!! Let's think about that for a second. Cal...8.8% tax. Nevada...0% tax. Tough choice.
@crazybob369
re: Tesla / Nevada
read what Tesla got:
"Nevada paying nearly $200,000 per job."
"The eye-popping package is more than double the $500 million Tesla CEO Elon Musk had initially named as his target for incentives, and one of the largest ever provided to a single company."
(Nevada IS a whore)
When does Jack Lew join Goldman?
ZH: Goldman Warns "Something Has To Give" On Tax Inversions
IBID: "Goldman Warns "Someone Has To Give" On Tax Inversion
Now I know I live in a country run by idiots.
Golman Sachs articles are showing up on ZH. Blankfein is the enemy. Don't fall for it. Run.
Goldman Warns "Something Has To Give" On Tax Inversions
No. Something had to give on taxes and it's tax inversions.
Will Scotland become the next Ireland?
when is CONGRESS going to do its job and LOWER THE CORPORATE TAX RATE...
LEW looks like he just exited a MENTAL INSTITUTION.....
OBAMA HAS "AUTHORITY".... LEW HAS "AUTHORITY."... EVERYONE HAS "AUTHORITY."... read the fucking CONSTITUTION.... YOU WILL SEE THAT YOU dont have the "authority" you think you have....
and at the end of the day lawyers will make lots of money proving all the way up to the supreme court that you DONT.....