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US Treasury issues new rules on corporate tax avoidance

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The US Treasury Department on Thursday unveiled new rules to limit corporate tax avoidance based on lending to affiliated companies, a practice known as "earnings stripping".

[WASHINGTON] The US Treasury Department on Thursday unveiled new rules to limit corporate tax avoidance based on lending to affiliated companies, a practice known as "earnings stripping". The new regulations join a rule the Treasury adopted in April to dissuade companies from engaging in so-called "corporate inversions", when companies move abroad to reduce or eliminate their tax burdens.

Earnings stripping is commonly used to lower taxes after such inversions and involves deducting interest payments on loans to affiliated corporate entities, according to the Treasury Department.

The rules will in some circumstances treat debt as equity and require companies claiming deductions on related-party loans to provide documentation, as they would for third-party loans.

Treasury Secretary Jacob Lew said Thursday that his department was taking action because lawmakers had not.

"In the absence of congressional action... it is Treasury's responsibility to use our authority to protect the tax base from continued erosion," Mr Lew told reporters during a conference call.

"We have taken a series of actions to make it harder for large foreign multinational companies to avoid paying US taxes and reduced the incentives for US companies to move overseas."

Mr Lew in August reacted with dismay to European authorities' decision to force iPhone maker Apple to pay US$14.5 billion in back taxes after the company negotiated highly favorable tax arrangements with authorities in Dublin.

"Recent developments, such as the European Commission's state-aid investigations, have brought additional attention to the issue," Mr Lew said Thursday.

AFP