The Treasury Department and the Internal Revenue Service have issued new rules to discourage American companies from moving their headquarters abroad to lower their tax rates. The new rules make that more difficult by curtailing companies’ ability to avoid United States tax rates in locations where they lack substantial business activity.
American companies have been reduce their tax liabilities through corporate inversion — purchasing smaller foreign competitors to move their headquarters to countries with more favorable tax rates than the United States.
Treasury Secretary Jacob J. Lew has called on Congress to act on inversions. Substantive and long term changes will have to come from Congress in the form of legislation.