Speaking to CNBC today, Jack Lew, US Treasury Secretary
spoke about his view on tax avoidance, and what the US is doing to tackle
“frustration in tax systems that don’t seem fair”. This comes on the back of
rules to stop US businesses inverting into lower tax jurisdictions, but little
likelihood of more widespread US tax reform.
Following on from measures to prevent tax inversions, the US
has just finalised rules tackling earnings stripping; the loading of US
businesses with debt from lower tax jurisdictions. Lew sees this as an
“important statement that tax avoidance that is used to support inversions will
be stopped and tax avoidance that is egregious will be stopped”.
The initial draft rules on earnings stripping were met with
significant concerns from business. There were hundreds of responses to the
proposals, which, according to Lew, mostly boiled down to six issues. He
believes these have been resolved though exemptions or tweaks, to remove the
unintended consequences. Others, including Kevin Brady who chairs the House Ways and Means Committee, which is responsible for tax, have said that these measures have been introduced too hastily, and remain harmful to business.
In support of these measures, Lew said that, “companies are
using the tax code to avoid paying taxes. Earnings stripping is used to do
that.”
When asked about the European Union, and in particular the
European Commission’s use of the State Aid rules, Lew said that, “State Aid is
a different concept than we have in the US, and we believe its application is
unfair.”
However, he was not wholly critical of the role the
Commission has played.
“The European Commission’s action has put a bright light on
the fact that if Congress doesn’t act, others are going to start doing things
that we think are unfair. We agree with the Europeans that it’s wrong for
companies to be able to avoid taxes almost completely. What we don’t agree with
is that the US tax base should be used by another taxing authority.”
Lew suggested that the new year might bring the opportunity
for further action, but significant tax reform in the US still seems a long way
off. However, it is clear that European actions are being watched very
closely, and counter measures cannot be ruled out.
The full interview can be found here: http://video.cnbc.com/gallery/?video=3000559475&play=1
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