Closing Corporate Tax Loopholes: Stricter Rules for Company Inversions.
This bill makes it significantly harder for large companies to move their legal headquarters abroad to avoid paying U.S. corporate taxes (known as corporate inversions). It introduces stricter criteria defining when a foreign company that acquires a U.S. entity must still be treated as a domestic corporation subject to full U.S. taxation. The goal is to ensure that companies maintaining substantial operations and management control within the U.S. pay their fair share of taxes, potentially increasing federal revenue.
Key points
Stricter Ownership Test: A foreign company is treated as domestic for tax purposes if 80% or more of its value is held by former U.S. shareholders.
New Control Test: A company is treated as domestic if 50% or more of its value is held by former U.S. shareholders AND management and control occur primarily within the United States.
New 'Significant Domestic Business Activities' Test: Companies are treated as domestic if management is primarily in the U.S. AND at least 25% of employees, compensation, assets, or income are tied to the U.S.
The new rules apply retroactively to transactions completed after May 8, 2014, aiming to capture past inversion deals.
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