WASHINGTON (Reuters) - The Obama administration, in its latest bid to prevent American companies from minimizing U.S. taxes by rebasing abroad, issued final rules on Thursday to combat a key tax-reduction technique known as earnings stripping.

United States Secretary of the Treasury Jack Lew speaks at the Centre for American Progress in Washington, U.S., October 13, 2016. REUTERS/Gary Cameron

Six months after proposing the regulations, the U.S. Treasury made good on its pledge to move swiftly against corporate tax inversions by rolling out the new final rule, despite opposition from business groups and from Republicans in Congress who demanded a delay only last week.

“For years, this administration consistently has called for comprehensive business tax reform to fix our broken tax system,” Treasury Secretary Jack Lew told reporters. “In the absence of congressional action, however, it is Treasury’s responsibility to use our authority to protect the tax base.”

Business lobbyists said the rules would likely be challenged in court.

Tax inversions occur when a U.S. company is acquired by a smaller foreign business from a low-tax country and adopts its domicile to reduce the combined firm’s overall U.S. tax burden.

Inversions have occurred since the 1980s, but a new wave in recent years prompted the Treasury to take a series of actions including Thursday’s final regulations, which were unveiled in April as part of a package that led to the collapse of a $160 billion merger deal between U.S. drugmaker Pfizer Inc (PFE.N) and Ireland’s Allergan Plc (AGN.N).

Treasury also imposed a temporary rule in April to prevent foreign companies from engaging in serial inversions. That is expected to be finalized later this year.

Earnings stripping occurs when the U.S. subsidiary of a newly inverted company avoids taxes on domestic operations by sending them overseas as tax-deductable interest payments.

The newly finalized regulations would reclassify some forms of debt as equity, changing tax-exempt interest payments into dividends that are taxed.

Business groups including the U.S. Chamber of Commerce have warned that the regulations could harm the cash management operations of U.S.-based multinationals and pose damaging unintended consequences for a range of businesses by creating mountains of red tape.

But Treasury officials said the final rules addressed those concerns by granting exemptions for regulated financial and insurance firms, cash pooling, short-term debt, transactions between the foreign units of U.S. companies, stock acquisitions for employee compensation plans and other operations.

The regulation also relaxed requirements for companies to document intercompany loans and delayed the documentation deadline for a year to Jan. 1, 2018.</s>The US government has issued new regulations aimed at clamping down on so-called tax inversions, a practice whereby multinationals shift their tax base to lower tax jurisdictions in order to reduce their bills.

The EU has been in the crosshairs of US politicians for years, as multinationals have sought to avoid the US corporate tax rate of 35 per cent. The Republic has long been a destination of choice for big corporations because of its 12.5 per cent rate.

On Thursday, the US Department of Treasury and the Internal Revenue Service issued “final regulations” that will further reduce the benefits of corporate tax inversions and “level the playing field between US and non-US businesses”.

The move will likely have serious repercussions for the Republic’s ability to attract big business from the United States.

The US government said the move would limit the ability of companies to lower their tax bills through transactions involving debt that do not support new investment in the US. The rules will also reduce the incentive for companies to engage in inversions.

The regulations also require large corporations claiming interest deductions to document loans to and from their affiliates, just as businesses of all sizes do when they borrow from unrelated lenders.

“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,” said Treasury Secretary Jacob J. Lew. “Such tax avoidance practices are wrong and should be stopped,” he added.

Specifically, the regulations will narrowly target problematic “earnings stripping” transactions that generate deductions for interest payments on related-party debt that does not finance new investment in the US.

The US government said the rules would seek to minimise “unintended consequences” for regular business activities.</s>We have so far looked at tax dispute resolution mechanism in Tanzania from tax audits, tax assessment and tax objections. We noted that tax objection is an internal tax dispute resolution mechanism and the first attempt by a tax payer to resolve a tax dispute.

Experience has shown thatdespite the lack of an independent body within TRA to deal with objections, when this process is used properly it can help toresolve a tax dispute.

The tax payer should aim to resolve a tax dispute at this stage by participating actively through provision of missing information, evidences and clarification to the tax officers. The tax payer should consider the use of a tax consultant to smoothen the process. Tax officers should also positively engage with the tax payer with a view to resolve the tax dispute at this stage by considering all information, evidences and clarifications provided by the tax payer.

There are other procedures a tax payer may pursue if after an objection a tax payer is still not satisfied with the decision of the TRA Commissioner General. The tax payer may first appeal the tax decision externally to the Tax Revenue Appeals Board, then to the Tax Revenue Appeals Tribunal and lastly to the Court of Appeal.

If after an objection a tax payer is still not satisfied with the decision of the TRA Commissioner General, he may first appeal the tax decision externally to the Tax Revenue Appeals Board. The Board hears tax appeals on disputes arising from revenue laws administered by the Tanzania Revenue Authority (TRA).

The Board is the first Original jurisdiction to hear civil disputes of tax nature. The objections raised to the Board should arise from final determination of an assessment by the TRA Commissioner General.

A tax payer should file a notice of intention to appeal to the Board within 30 days from when the TRA Commissioner General decision was made and serve the notice to the Commissioner General. The appeal should be filed with within 45 days of Commissioner General’s decision. Failure to comply with the timelines or serving of the notice shall make the appeal incompetent.

If the tax payer is still aggrieved after the decision of the Tax Revenue Appeals Board, he can appeal to the Tax Revenue Appeals Tribunal. This is the second chance of appeal and the Tax Revenue Appeals Tribunal hears tax appeals disputes arising from Tax Revenue Appeals Board.

A notice of appeal to the tribunal should be filed within 15 days from the Tax Revenue Appeals Board decision. The notice must be served to the other party within 15 days from date of the Board’s the decision otherwise the appeal shall be deemed invalid and will be struck out by the tribunal. However, extension of time to lodge the notice of appeal can be granted when there is a reasonable cause.

This is the third and final opportunity to resolve a tax dispute. Thus when a tax payer is not satisfied with the decision of the Tax Revenue Appeals Tribunal he can appeal against the decision to the Court of Appeal. The Court of Appeal will only entertain disputes on matters of laws. A notice of intention to appeal should be lodged and served to the other party 14 days from the decision of the Tribunal. Failure to do so to shall invalidate the appeal.
The Obama administration's Treasury Department, in a move against corporate tax inversions, enacts regulations to combat a key tax-reduction technique known as earnings stripping.