On July 22, 2014, the Senate Finance Committee held a hearing titled, “The U.S. Tax Code: Love It, Leave It, or Reform It!” The general topic of the hearing was international taxation, with a sharp focus on recent and possible future corporate inversion transactions. The hearing also addressed a variety of issues, including the high U.S. corporate tax rate, the potential benefits of a territorial tax system, and the impact that failing to reform the Internal Revenue Code (“IRC” or “Code”) would have on the U.S. economy. Witnesses also discussed the Organisation for Economic Co-operation and Development’s (“OECD”) base erosion and profit shifting (“BEPS”) project, aimed at curbing multinational corporate tax avoidance.

Background -

The US corporate income tax rate of 35 percent is one of the highest in the world, and the United States is the only G-7 country that does not have a territorial tax system for multinational businesses based in the country. While these features have been a major focus in the development of comprehensive tax reform proposals, they have also been cited as providing significant incentives for the recent wave of corporate inversions, whereby a U.S. corporation relocates its headquarters abroad. The Obama Administration and many Congressional Democrats have called for an immediate ban on inversions, and some have introduced legislation to achieve this result. Republican tax-writers have opposed legislation of the type proffered to date and have maintained that only comprehensive tax reform that lowers rates, adopts a territorial system, and modernizes the tax Code will ultimately curb inversions. However, following the recent string of inversion announcements, some Republicans may have begun to refine their position.

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IRC
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Tax

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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