|Jacob Lew was
also in the Global Tax 50
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