According to Reuters, President Barack Obama's administration plans to prevent American companies from shifting their headquarters overseas to avoid U.S. taxes.
The Treasury Department proposed a regulation aimed to combat "earning stripping," which is implemented through tax-avoiding mergers known as "inversions." Companies using this practice shift their taxable earnings from U.S. operations to the re-domiciled, former American parent as debt interest payments, which are tax deductible in the United States and subject to a lower income tax rate overseas.
The proposal, backed by Democrats and academics as a way to prevent companies from avoid U.S taxes, is opposed by Republicans, who believe the measures overstep administration authority and could discourage foreign investment in the United States.
A public meeting on proposed changes will be held on Thursday.
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The proposal also received criticism from several banks and corporations. As reported by Reuters, U.S. multinational Procter & Gamble Co (NYSE: PG) warned the Treasury the proposed rules would require countless changes throughout its corporate structure if a myriad of daily loans between affiliates were re-characterized as equity investments.
According to Joe Moeller, Proctor & Gamble's chief financial officer, it will be extremely difficult, if not impossible, to monitor and administer, adding that the company would face pre-tax costs of $220 million to $340 million a year as a result of adverse tax consequences and burdens.
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