Perspectives

State tax implications of a changing international tax landscape

Multistate Tax alert | October 16, 2014

​In this alert we summarize Notice 2014-52 ("Notice"), other federal legislative proposals, the OECD’s Base Erosion and Profit Shifting (“BEPS”) Project, and related state proposals and initiatives that could impact foreign-based multinational corporations with investments in the U.S. as well as those considering U.S. investments.

​Notice 2014-52, rules regarding inversions and related transactions

On September 22, 2014, the United States Treasury (“Treasury”) issued Notice 2014-52, Rules Regarding Inversions and Related Transactions (“Notice”). The Notice may be viewed as a response to several recent announcements by U.S. multinational companies, expressing their intentions to engage in inversion transactions. An “inversion” may actually cover a broad category of transactions but, as currently used in the press, the term appears intended to mean a merger or other transaction that among other things results in a U.S.-based company becoming a foreign corporation. Cross-broader mergers are generally driven by global business strategies and economic efficiencies. For example, an inversion may set the stage for future businesses or expanded product lines that will operate under the new foreign entity. These transactions are generally structured in conformity with the rules of the current Internal Revenue Code (“I.R.C.”) and may indirectly result in certain U.S. tax benefits.

The Notice is the latest action in a summer filled with tax policy discussions and legislative proposals, both in the U.S. and abroad, centered on the international tax landscape. On the federal front, Senate Finance Committee member Charles E. Schumer (D-NY) introduced the “Corporate Inverters Earnings Stripping Reform Act of 2014” (S. 2786) on September 10, 2014, and House Ways and Means Committee Ranking Member Sander Levin (D-Mich.) and Senate Permanent Subcommittee on Investigations Chairman Carl Levin (D-Mich.) introduced similar versions of the “Stop Corporate Inversions Act of 2014” in the House (H.R. 4679) and Senate (S. 2360) in May 2014. At the state level, New Jersey State Senator Shirley Turner (D) introduced a series of bills that would deny state benefits to traditional international tax structures. Abroad, the Organization for Economic Co-Operation and Development (“OECD”) recently released a series of non-binding recommendations to change domestic tax laws, treaties and other measures in an effort to ease government concerns related to tax base erosion and profit shifting. With change appearing to be at the forefront of the international conversation, some taxpayers have begun to consider the potential impact on their state tax postures as states begin to react to the international tax discussion.

In this Alert we summarize the Notice, other federal legislative proposals, the OECD’s Base Erosion and Profit Shifting (“BEPS”) Project, and related state proposals and initiatives that could impact foreign-based multinational corporations with investments in the U.S. as well as those considering U.S. investments.

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​Multistate Tax alert archive

The Multistate Tax Alert Archive includes external tax alerts issued by Deloitte Tax LLP's Multistate Tax practice during the last three years. These external alerts highlight selected developments involving state tax legislative, judicial, and administrative matters. The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons.

A list of archived Multistate Tax alerts.

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