The Treasury department plans to crack down on American companies that reincorporate overseas as a way to avoid paying taxes.
Treasury Secretary Jacob Lew announced Monday that new rules will help close the "glaring loophole in the U.S. tax code" that allows an American business to acquire a foreign company in order to switch its citizenship and avoid U.S. taxes. One target is "hopscotch" loans, where companies are able to get around paying taxes on dividends by loaning their earnings to the foreign company, USA Today reports. Those will now be taxable in the U.S. A requirement that the company's former owners own less than 80 percent of the new company is also being strengthened.
Lew said that these new rules are not meant to deter companies from merging. "Genuine cross-border mergers make the U.S. economy stronger by enabling U.S. companies to invest overseas and encouraging foreign investment to flow in the United States," he said.
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