U.S. Treasury announces rules to stop tax inversion

U.S. Treasury Department on Monday rolled out new rules to combat tax inversions, the latest effort by the Obama administration to push forward anti-inversion measures.

A corporate inversion is a transaction in which a U.S.-based multinational group restructures so that the U.S. parent is replaced by a foreign parent, in order to avoid hefty high U.S. corporate tax.

Under the new rules, companies undertaking inversions will not be able to make use of its foreign subsidiary's earnings without paying taxes on them.

The rules also prevent inverted companies from transferring cash or property from a controlled foreign corporate to the new parent to avoid the U.S. tax.

"These first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether," said Treasury Secretary Jacob Lew.

Inversion deals, such as Burger King's acquisition of Tim Hortons and Medtronic's acquisition of Covidien, are on the rise in recent years, as the American economy is improving.

President Barack Obama, who has condemned inversions as technically legal but "wrong," applauded the Treasury Department's new move.

"We've recently seen a few large corporations announce plans to exploit this loophole, undercutting businesses that act responsibly and leaving the middle class to pay the bill, and I'm glad that Secretary Lew is exploring additional actions to help reverse this trend," he said in a statement on Monday.