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Treasury's Unfinished Work on Corporate Expatriations

10 Pages Posted: 23 Feb 2016  

Stephen E. Shay

Harvard Law School

J. Clifton Fleming Jr.

Brigham Young University - J. Reuben Clark Law School

Robert J. Peroni

University of Texas at Austin - School of Law

Date Written: February 22, 2016


Continued tax-motivated inversions of U.S. corporations into foreign corporations highlight the systemic tax advantages that a foreign-owned U.S. corporation has over a U.S.-owned corporation in avoiding U.S. corporate tax on U.S. business income. In the absence of congressional action, this article emphasizes the need for the Treasury to further reduce U.S. tax incentives for inversions and other foreign acquisitions of U.S. corporations. The two most important of the tax incentives are earnings stripping and the ability to use, directly or indirectly, a U.S. group’s unrepatriated foreign earnings for the benefit of shareholders of the foreign parent corporation without incurring current U.S. income tax. These tax advantages will not be meaningfully reduced by any plausible lowering of the top U.S. corporate tax rate. Moreover, earnings stripping would be exacerbated by adoption of a territorial system. Treasury should use the administrative authority Congress delegated to it under Code sections 385 and 956 to restrict these foreign parent tax advantages and counter renewed market pressure on U.S. groups to engage in this form of tax avoidance. Treasury should employ existing anti-abuse regulations to address use of unrepatriated CFC earnings to benefit foreign parent groups.

Suggested Citation

Shay, Stephen E. and Fleming, J. Clifton and Peroni, Robert J., Treasury's Unfinished Work on Corporate Expatriations (February 22, 2016). 150 Tax Notes, Policy Perspective. Available at SSRN: or

Stephen Shay (Contact Author)

Harvard Law School ( email )

1563 Manssachusetts Avenue
Cambridge, MA 02138
United States

J. Clifton Fleming

Brigham Young University - J. Reuben Clark Law School ( email )

430 JRCB
Brigham Young University
Provo, UT 84602
United States

Robert Peroni

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

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