On the official side of
the inversions debate, Jacob "Jack" Lew has been the most
influential figure in 2014.
|Jacob Lew is a
new entry this year
Reacting to the spike in the number of US companies looking
option of inverting out of the country, Lew was a sensible
and balancing voice in the debate. He did not go as far as
Senate Finance Committee chairman Ron Wyden's "virus" comments,
but he did call for a "
new sense of economic patriotism".
Lew also acknowledged that
broader tax reform would be preferable to targeted
legislation to deal with inversions, but later said action on
inversions could not wait.
comprehensive business tax reform that includes specific
anti-inversion provisions is the best way to address the recent
surge of inversions,
we cannot wait to address this problem. Treasury will
continue to review a broad range of authorities for further
anti-inversion measures as part of our continued work to close
loopholes that allow some taxpayers to avoid paying their fair
The Treasury and IRS released proposed regulations in
January to address the use of certain disqualified stock in
corporate inversions, and this was followed by further
anti-inversion legislation. On May 20 the Levin brothers
Senator Carl (Global Tax 50 2013 member) and Representative
Sander – released the Stop Corporate Inversions Act of
2014, and this was followed later in the year by new
anti-inversion rules, applicable from September 22.
These rules had two general aims: to broaden the scope of
section 7874 to make it more difficult for US companies to
implement inversions; and to limit the ability of a
post-inversion foreign parent to access cash from the US
company's controlled foreign corporations in a tax efficient
"These first, targeted steps make substantial progress in
constraining the creative techniques used to avoid US taxes,
both in terms of meaningfully reducing the economic benefits of
inversions after the fact and, when possible, stopping them
altogether," said Lew, who previously stated he wants to see
"business decisions for business reasons, not for tax
Unsurprisingly, not everybody welcomed Lew's Treasury
"I find the existing anti-inversion laws and the proposals
to tighten them
somewhat troubling," said Jim Ditkoff, senior VP –
tax and finance – at Danaher Corporation, at the time
Lew announced the proposed regulations. "It's like the Berlin
Wall. If you have a free society that wants to encourage
business enterprise, why do you need to build a wall to keep
your people or your businesses from escaping?"
Having been the domestic policy adviser to House Speaker
"Tip" O'Neill between 1979 and 1987 – a period
which includes the last time fundamental tax reform was
achieved in the US (1986), driven in part by O'Neill –
Lew should be well-placed to galvanise bipartisan efforts to
bring the US code into the 21st century. His former position as
President Obama's chief-of-staff should also mean he has the
relationships on Capitol Hill to be an influential driver of
reform efforts in the next two years.
Another encouraging sign for US reform advocates is that Lew
must have read the June 2014 issue of International Tax
Review which carried the "Berlin wall" comments from
Ditkoff above. At the beginning of December, in a commencement
address at the Georgetown University McCourt School of Public
Policy, Lew spoke of the
importance of bipartisanship, saying the "pendulum is
swinging back to getting things done in a bipartisan way".
He encouraged the audience to find ways to "break down those
walls" and "work with those who hold different views to fashion
honourable compromises that will move our country forward".
Right message; wrong audience. To increase his influence in
2015 and beyond, he now needs to take those sentiments back to