By David Morgan
WASHINGTON (Reuters) - Republican lawmakers called on U.S. Treasury Secretary Jack Lew on Monday to overhaul proposed regulations intended to crack down on American companies that try to reduce their U.S. taxes by rebasing abroad in a process known as inversion.
In separate letters, top Republicans on the Senate Finance Committee and House Ways and Means Committee warned on Monday that Treasury is moving too quickly to adopt regulations to prevent overseas mergers known as tax inversions, in which U.S. firms relocate their headquarters in countries with lower corporate tax rates.
"If the proposed regulations are not completely overhauled, they would damage our economy, increase the barriers to investment for American businesses and innovators, and interfere with the growth of ... good-paying jobs," said a letter to Lew from Ways and Means Committee Chairman Kevin Brady and other Republicans on the panel.
"We cannot allow this to happen,” they wrote.
The regulations were proposed in April and Treasury has indicated that it intends to move swiftly to finalize the rules. Industry leaders fear the rules could be in place permanently as early as September.
One new inversion rule, which has already been imposed on a temporary basis, was challenged this month in federal court by business groups including the U.S. Chamber of Commerce.
Brady and other Republicans including Senate Finance Committee Chairman Orrin Hatch trained their sights on proposals that industry officials say would swamp business with new red tape and cripple internal cash management operations at companies that are not involved in tax inversions.
"The only prudent way to move forward — given the complexity of the subject matter, given the many significant substantive concerns that have been pointed out, and given the procedural irregularities — is to issue the regulations in re-proposed form," Hatch said in his letter to Lew.
The proposed debt-equity rule is aimed at stopping a practice known as earnings stripping, which occurs when a newly inverted company eludes U.S. taxes by moving profits overseas as tax-deductible interest payments on loans to its foreign parent.
Treasury has proposed requiring debt interest payments to be converted into stock dividends, which are not tax deductible.
Critics say the regulations, as proposed, could play havoc with the internal finances of a range of unsuspecting businesses, from multinational corporations to limited partnerships.