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Chamber of Commerce Seeks Withdrawal of Anti-Inversion Guidance

FEB. 24, 2016

Chamber of Commerce Seeks Withdrawal of Anti-Inversion Guidance

DATED FEB. 24, 2016
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February 24, 2016

 

 

Office of Associate Chief Counsel (International)

 

Attention: David A. Levine and Shane M. McCarrick

 

Internal Revenue Service

 

1111 Constitution Avenue, NW

 

Washington, DC 20224

 

Re: Notice 2015-79, Additional Rules Regarding Inversions and Related Transactions

 

Dear Mr. Levine and Mr. McCarrick:

The U.S. Chamber of Commerce is the world's largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations. The Chamber is dedicated to promoting, protecting, and defending America's free enterprise system.

These comments are submitted in response to Notice 2015-79, Additional Rules Regarding Inversions and Related Transactions (the "2015 Notice"). The Chamber believes that the 2015 Notice fails to address the core problem that has led to the increase in inversions: the broken U.S. tax code which employs an antiquated worldwide system of tax at the highest rate among industrialized nations. There is bipartisan agreement that rather than adopt punitive, piecemeal rules purporting to stem the tide of inversions, the United States should undertake comprehensive tax reform which replaces our worldwide system of tax with a territorial system and lowers tax rates.

While the 2015 Notice may deter some inversions, others will continue to take place because the value of the inversion exceeds the U.S. tax cost and will benefit the company in the long run. Comprehensive tax reform that moves to a more competitive international tax system with lower rates is the only sure way to curb inversions.

The 2015 Notice, like Notice 2014-52 (the "2014 Notice), attempts to ensnare more transactions in the anti-inversion rules and reduce the benefits of inversions. The result is detrimental in two major ways. First, the continuing anti-inversion guidance, haphazardly applicable to even those cross-border transactions not motivated by tax purposes, simply ensures that, start-up businesses with potential for future global expansion, will incorporate outside the United States in order to avoid the "increasingly irrational penalties imposed on cross-border transactions."1

Second, the 2015 Notice compounds the 2014 Notice and adds increased complexity to the United States' already outdated tax code. By facilitating disparate treatment between foreign companies based on whether they are historically foreign, inverted prior to September 22, 2014, inverted on or after September 22, 2014, or inverted on or after November 19, 2015, and creating new and burdensome rules and restrictions based on those arbitrary designations, the 2015 Notice, like the 2014 Notice, moves the U.S. tax system in entirely the wrong direction. Additionally, the 2015 Notice often raises more questions than it answers2 adding more confusion and complexity and, as a result, increasing compliance costs.

As noted, neither the 2015 Notice nor the rules proposed therein address the root cause of inversions. The most effective solution to stop inversions is the enactment of comprehensive tax reform that includes a competitive international income tax system, lower tax rates, and that encourages capital investment in the United States. The proposed rules simply would make some inversion transactions less profitable, encourage companies to locate outside the United States from the outset, add complexity to the Code, and create onerous compliance burdens for taxpayers. For these reasons, the Chamber recommends that the Notice be withdrawn and that Congress be allowed to continue its work towards comprehensive tax reform.

Sincerely,

 

 

R. Bruce Josten

 

Chamber of Commerce of the United

 

States of America

 

Washington, DC

 

FOOTNOTES

 

 

1See, e.g., Blanchard. "Notice 2015-79: The Latest Round of Inversions Guidance," BNA Daily Tax Report (1/11/16), available at http://www.bna.com/notice-201579-latest-n57982065975/.

2See id. (Noting the questionable rationale for the third country foreign parent rule, unclear examples of the anti-stuffing rules, vague results under the portion of the guidance addressing indirect transactions treated as inversion gain, etc.). See also KPMG, "Impressions of Notice 2015-79 on Inversions," (11/20/16), available at https://home.kpmg.com/content/dam/kpmg/pdf/2015/11/inf-inversions-print-nov20-2015.pdf (Observing a lack of clarity on things such as the ownership test when inverting to a third country jurisdiction and the definition of "inversion gain").

 

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