Anti-inversion bill would limit earnings stripping | KPMG Global
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Legislative update: Anti-inversion bill would limit “earnings stripping”

Anti-inversion bill would limit "earnings stripping"

Ways and Means Committee ranking member Sander Levin (D-MI) and House Budget Committee ranking member Chris Van Hollen (D-MD) today introduced legislation that would limit deductions for interest paid to by a U.S. entity to a related foreign affiliate after an inversion transaction. The legislation was introduced in advance of tomorrow’s Ways and Means hearing on international tax reform.


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The bill—H.R. 4581, the “Stop Corporate Earnings Stripping Act”—would modify current law limitations on related-party interest under Code section 163(j) after an inversion transaction by:

  • Repealing the debt-to-equity ratio threshold
  • Reducing the permitted net interest expense threshold to no more than 25% of the entity’s adjusted taxable income
  • Repealing the excess limitation carryforward
  • Permitting disallowed interest expense to be carried forward only for five years (rather than indefinitely under present law)

These limitations would apply if historical shareholders of the U.S. entity own more than 50% (but less than 80%) of the new foreign parent entity following an inversion. 


Read text of the bill’s statutory language [PDF 37 KB] 

JCT report

In advance of the Ways and Means hearing, the Joint Committee on Taxation (JCT) released a report describing present law and recent global developments related to cross-border taxation. Read JCX-8-16

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