Millions Express Support for Proposed Debt-Equity Regs

Department of the Treasury

The 34 organizations and an individual that have signed these comments, which represent millions of members, strongly support the proposed rule on the Treatment of Certain Interests in Corporations as Stock or Indebtedness (REG-108060-15), also known as the "earnings stripping" rule.

Multinational corporations use a variety of accounting maneuvers to avoid paying their fair share of taxes. By instituting new rules to curb one of those techniques -- earnings stripping -- the Treasury Department is promoting equal application of the tax laws while protecting important public revenue. Treasury's proposed administrative action is both welcome and necessary.

Earnings stripping occurs when the foreign parent of an American subsidiary loads down that subsidiary with unnecessary internal loans, creating tax-deductible interest payments, which reduces the amount owed on U.S. profits. This also has the effect of moving profits out of the United States, often to tax havens, where they are taxed little or not at all. This tax-dodging technique is frequently used in -- and, indeed, is often the principal goal of -- corporate inversions. But it is not only used with corporate inversions.

Corporate tax dodging is not only unfair, it's expensive. It's been estimated that offshore profit shifting by American corporations -- a practice of which earnings stripping is a significant part -- costs the federal government $100 billion a year in lost revenue.¹

U.S. corporations have a duty to support with their tax dollars all the public services and infrastructure -- from public schools to transportation to our legal system -- that make conducting business in this country profitable. The proposed earnings stripping rule will ensure more companies fulfill that duty.