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Global Tax 50 2016: Jacob Lew

06 December 2016

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Secretary of the Treasury, US

Jacob Lew
Jacob Lew was also in the Global Tax 50 2014

Jacob Lew returns to the Global Tax 50 this year due to his influential tax changes that saw big business deals collapse. He has also been vocal in calling for US tax reform in the wake of the state aid investigations by the European Commission.

In addition, 2016 will mark Lew's final year in office as the Secretary of the Treasury. President-Elect Donald Trump will elect his new team when he takes office in January. However, without knowing it, Lew has been busy laying the foundations for Trump's presidency. Lew has pushed the introduction of several measures to tackle corporate inversions and profit shifting, while Trump spent much of his election campaign in 2016 pledging to curb "job-killing corporate inversions", albeit by using different measures.

On the official side of the inversions debate, Lew has been the most influential figure in 2016. Reacting to the spike in the number of US companies looking at the option of inverting out of the country, Lew has been at the forefront of actions to limit inversions, as well as addressing earnings stripping, a common technique used to minimise taxes after an inversion.

More than 50 US companies have left for lower-tax nations since the 1980s – 20 of those since 2012. Notable deals include Burger King's $11.4 billion inversion with Tim Hortons in Canada, Medtronic's $43 billion deal with Covidien in Ireland and Mylan's $5 billion inversion with a unit of Abbott Laboratories in the Netherlands.

"We have taken a series of actions to make it harder for large foreign multinational companies to avoid paying US taxes and reduce the incentives for US companies to shift income and operations overseas. Such tax avoidance practices are wrong and should be stopped," Lew said.

In April 2016, Lew issued temporary and proposed regulations to reduce the benefits of, and limit the number of, corporate tax inversions. Among other measures, the changes disregarded foreign parent stock attributable to recent inversions or acquisitions of US companies to prevent foreign companies (including recent inverters) that acquire multiple American companies in stock-based transactions from using the resulting increase in size to avoid the inversion thresholds for a subsequent US acquisition. The measures triggered the collapse of a $160 billion merger between American pharmaceutical company Pfizer and Ireland's Allergan.

Building on these changes, Lew took matters in his own hands in October by announcing earnings stripping regulations that reduce the benefit of corporate inversions and limit the ability of companies to lower tax bills through transactions involving debt that does not support new US investment. The regulations also require large companies claiming interest deductions to document loans to and from affiliates.

The rules were welcomed by many for being an improvement on those proposed in April, particularly for US multinationals. The headline improvement was the foreign issuer exception that exempts any debt issued by a foreign corporation from the regulations. "That change addresses the major concerns for most US multinationals, including with respect to cash pooling, and also reduces the complexity for non-US multinationals," Ronald Dabrowski, a principal in the Washington national tax practice at KPMG, told International Tax Review.

However, not all were happy with Lew's decision. He was heavily criticised by members of the Republican Party for not allowing Congress to scrutinise the final Section 385 regulations. But, Lew rose above the political rhetoric, saying that in the absence of Congressional action, it is Treasury's responsibility to use its authority to protect the tax base from continued erosion.

Lew's efforts in 2016 have not centred on corporate inversions, however. Lew also acknowledged that broader tax reform would be preferable to targeted legislation to deal with inversions, although action on inversions could not wait.

The secretary emphasised the need for tax reform again after the European Commission's state aid decision on Apple's tax rulings with Ireland.

"The commission's latest action in this area—a $14.5 billion retroactive tax bill to Apple—has been broadly condemned by members of Congress, business leaders and tax professionals. It also has highlighted the urgent need for comprehensive business tax reform. To be clear, the US Treasury agrees with the commission that there is a serious problem with tax avoidance around the world. American corporations alone are avoiding paying US taxes by holding more than $2 trillion in deferred overseas income," Lew said in an opinion piece written for the Wall Street Journal. "The Apple decision, and the bipartisan reaction to it, may present a new opportunity to make reform a reality. That opportunity should not be lost."

The Global Tax 50 2016
View the full list and introduction
The top 10 • Ranked in order of influence
1. Margrethe Vestager 2. The International Consortium of Investigative Journalists
3. Brexit 4. Arun Jaitley
5. Jacob Lew 6. Antoine Deltour and Raphaël Halet
7. Operation Zealots 8. Guy Verhofstadt
9. Theresa May (and the 'three Brexiteers') 10. Donald Trump
The remaining 40 • In alphabetic order
Kemi Adeosun Piet Battiau
Elise Bean Monica Bhatia
Allison Christians Tim Cook
Rita de la Feria Caroline Flint
Judith Freedman Chrystia Freeland
Pravin Gordhan Orrin Hatch
Meg Hillier Mulyani Indrawati
Lou Jiwei Paul Johnson
Stephanie Johnston Chris Jordan
Pravind Jugnauth Wang Jun
Jean-Claude Juncker Kathleen Kerrigan
Christine Lagarde Werner Langen
Jolyon Maugham Angela Merkel
Narendra Modi Will Morris
Michael Noonan Grace Perez-Navarro
Platform for the Collaboration on Tax Donato Raponi
Pascal Saint-Amans Heather Self
Robert Stack Tax Justice Network
The Gulf Cooperation Council (GCC) Transparency International
US Committee on Ways and Means Rodrigo Valdés

International Correspondents