Delphi Wins IRS Appeal, Will Be Treated as UK Corporation

Delphi Automotive PLC, one of the leading suppliers of technology and devices allowing development of self-driving vehicles, won an appeal with the IRS allowing the company to be treated as a U.K. tax resident for U.S. federal tax purposes. The tax agency claimed in 2014 that Delphi, whose top executives are still in Troy, Mich., should be treated as a U.S. corporation for income tax purposes even after it reincorporated in the U.K.

Delphi was a part of General Motors Co. until 1999. It emerged from bankruptcy proceedings in 2009 and formed a limited liability partnership registered in Gillingham, England. It acquired certain assets of the former Delphi Corporation and, as a result, its foreign residency status was contested by the IRS.

In its filing with the Securities and Exchange Commission (SEC), Delphi said the IRS Office of Appeals concluded that the company would be treated as a UK corporation and would not have to adjust its 2009 and 2010 tax returns as was anticipated earlier.

Pfizer, Allergan Walk Away from $160 Billion Merger

The announcement came in a filing with the SEC just days after Pfizer abandoned its merger plans with Ireland-based Allergan, which in turn came only days after the IRS and the U.S. Department of the Treasury announced new temporary U.S. regulations aimed at slowing corporate inversions.

A corporate inversion may take many forms, but has been generally described as a transaction that results in a U.S. parent corporation of a multinational group being replaced with a foreign parent. An inversion is typically accompanied or followed by certain transactions that are intended to remove foreign operation income from the U.S. taxing jurisdiction.

In addition, the corporate group may derive further advantage from the inverted structure by reducing U.S. tax on U.S.-source income through earnings stripping or other transactions. Earnings stripping is a commonly-used tactic used by multinational corporations to escape high domestic taxation by using interest deductions to their foreign headquarters in a friendly tax regime to lower their corporate taxes.
Allergan’s CEO Brent Saunders said he felt that “for the rules to be changed after the game has started . . . is a bit un-American, but that’s the situation we’re in.” But, in announcing the new regulations, Treasury Secretary Jacob Lew said, “Today, we are announcing additional actions to further rein in inversions and reduce the ability of companies to avoid taxes through earnings stripping. This will have an important effect, but we can’t stop these transactions without new legislation. … Ultimately, the best way to address inversions is to reform our business tax system.”

White House press secretary Josh Earnest said the Treasury wasn’t focusing on any specific transaction, but rather closing loopholes that allow companies to lower tax bills by changing their address.

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Cross Border Accountant - San Diego CA