U.S. tax avoidance clampdown a potential headache for Apple

WASHINGTON (Reuters) - Apple Inc and other U.S. multinationals will face new curbs on tax loopholes under a rule imposed by Washington on Thursday, part of a scramble among governments worldwide to bolster their corporate tax bases.

A 3D printed Apple logo is seen in front of a displayed Irish flag in this illustration taken September 2, 2016. REUTERS/Dado Ruvic/Illustration/File Photo

Acting shortly after a European Union grab for billions of dollars in back taxes from Apple, the U.S. Treasury said it was tightening restrictions on companies’ use of foreign tax credits to reduce what they owe in U.S. taxes.

“We are closing another tax loophole that contributes to the erosion of our tax base,” Treasury Assistant Secretary for Tax Policy Mark Mazur said in a statement.

The fight for multinational tax revenues escalated on Aug. 30 when the EU ruled Ireland was giving improper state aid to Apple in the form of a deal for low taxes. The EU ordered Apple to pay Ireland 13 billion euros ($14.6 billion) in back taxes, prompting U.S. Treasury Secretary Jack Lew to express concern the EU ruling could undermine the U.S. tax base.

Analysts have speculated whether Apple would be able to cut its U.S. tax bill by claiming foreign tax credits for its extra tax bill in Ireland.

Under normal circumstances, U.S. companies can reduce the taxes they owe the U.S. government by the value of the tax credits they claim for taxes paid abroad on foreign profits. No U.S. tax is due on those profits until they are brought into the United States, or repatriated.

The new rule will prevent companies faced with back tax bills from “splitting,” a strategy that allows companies to bring foreign tax credits into the United States without repatriating the income from which they were derived.

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Apple had no comment on Treasury’s tax notice. The technology giant is not the only U.S. company in the crosshairs of EU state aid investigations.

Starbucks Corp has been ordered to pay up to 30 million euros ($33 million) to the Dutch state, while Inc and McDonald’s Corp are under investigation by the EU’s executive arm.

The new rule was likely to ratchet up transatlantic tensions over corporate taxes while eliminating one more strategy U.S. companies can use to cushion the blow from increasingly aggressive EU tax collection efforts.

The tax notice specifically cited European Union state aid investigations as a risk to U.S. revenues.

The Treasury had no comment on whether its notice would have an impact on Apple directly, but a spokesperson said the notice applies to all companies required by a foreign government to pay additional taxes, including those hit by state-aid cases.

Reporting by Jason Lange; Editing by Meredith Mazzilli and Howard Goller