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Stephen Shay

  • SCOTUS Case Denial Is Treasury’s Win in Tax-Rule Scrutiny Era

    June 24, 2020

    The Supreme Court’s decision not to review a major Ninth Circuit ruling that went against tech companies gave the Treasury Department a win, and could offer the department some hope as it faces increasing scrutiny of its tax regulations. The circuit court’s decision in Altera v. Comm’r upheld regulations that Apple, Google, and Facebook claimed would cost U.S. companies billions of dollars. That high-stakes win for Treasury demonstrates a potential limit to lawsuits alleging that the department didn’t follow proper procedures when issuing regulations. Experts still caution, though, that Treasury should be careful at a time when it faces increasing oversight...Stephen Shay, a senior lecturer at Harvard Law School and former Treasury official, cautioned, however, not to read too much into Treasury’s win. He pointed to Altera as well as a decision dealing with Treasury regulations from the 1960s in SIH Partners, LLLP v. Comm’r, as demonstrating that Treasury can win against challenges to regulations that were issued before the more modern understanding of how the APA applies. “But I’d be leery—I think agencies should be careful in what they would say is irrelevant,” he said. “One of the things that’s induced by this whole emergence, or reenforcement, of the Administrative Procedure Act process is that you’re better off at least touching most comments unless you’re very clear they’re off the wall.”

  • Pandemic Vexes Debate On Digital Taxes, Unprofitable Cos.

    April 27, 2020

    Discussions about how to tax online commerce were complicated enough during the economic expansion of the past 10 years, when the internet behemoths were assumed to be hugely profitable. The chaotic economic fallout from the novel coronavirus pandemic will turn that debate on its head, and it will force governments to accept that to raise revenue from digital activities, they'll also need to account for economic losses when those activities become unprofitable. Despite questions about whether governments can focus energy amid the crisis, the Organization for Economic Cooperation and Development remains committed to forging an agreement among nations on the issue by the end of this year. The pressure on countries to reach a deal, even as the task seems to grow more difficult by the day, has only increased as countries go deep into debt to fight the disease — and look to digital taxes as a way to climb out... “A tax on rents is designed to be a kind of painless tax, if there is such a thing,” said Stephen Shay, a tax professor at Harvard Law School. “The notion is that it taxes excess profits, which make them sound like they are not needed by the taxpayer. They increase the government's share when things are going well — and they go away when things are going badly.” Steep drops in revenue pose a larger threat to poorer countries and could make this new system less attractive to them, Shay said. “The countercyclical feature is great for rich countries that can borrow to cover fiscal deficits,” he said. “The feature for rich countries is a problem for poor countries that have no access to global capital markets and only can borrow from the World Bank and [International Monetary Fund].”

  • OECD director, tax experts, explore proposed “unified approach to pillar one” for taxing multinational groups

    October 21, 2019

    The OECD Secretariat’s proposed “unified approach to pillar one,” designed to encourage agreement among countries on how to rewrite the international tax and transfer pricing system to better account for digital business models, was the focus of the sixth annual Tax Sunday event, held October 20 in Washington, D.C. The meeting, co-sponsored by the International Monetary Fund and the World Bank Group, featured presentations and discussion by leading tax experts from OECD, government organizations, civil society, business, and academia. ... Professor Stephen E. Shay, Senior Lecturer, Harvard Law School, said it is a “fantasy” to believe the tax rewrite “is a 2020 process.” Shay said the OECD’s pillar one unified approach is devoid of details except that it does not apply to extractive industries. Thus, it is not possible to talk about any policy implications. The process should be slowed down so that policymakers can “get it right” for developing countries, Professor Shay said. He also said that each country should determine its own threshold for physical presence and should give away taxing rights only by tax treaty. Further, he noted that although extractive industries are excepted from the rules, these industries can also make use of tax havens.

  • Altera Asks Ninth Circuit to Revisit Landmark Tax Case

    July 23, 2019

    Altera Corp. is asking the Ninth Circuit to revisit a dispute with the IRS over taxes on assets shifted overseas, the latest development in a case that could have billion-dollar implications for multinational companies. The Intel-owned company is seeking an en banc review of a June 7 decision from a Ninth Circuit panel, which sided with the government. The three-judge panel found the Internal Revenue Service was able to require Altera to include stock option compensation to employees in a cost-sharing arrangement with its foreign subsidiary. ... Stephen E. Shay, a senior lecturer at Harvard Law School who focuses on international tax issues, said he doesn’t think the case merits an en banc review. “There is nothing new, unique, or obviously flawed in the panel’s application of the APA that would justify en banc review,” he said, referring to the Administrative Procedure Act.

  • Tax Law Quirk Could Help Apple and Microsoft Lower Their Bills

    April 3, 2018

    The Internal Revenue Service is providing some relief for companies facing looming tax bills after they stockpiled trillions of dollars offshore free of U.S. income tax. A timing quirk in the tax overhaul seemed to give companies such as Apple Inc., Microsoft Corp. and Cisco Systems Inc. -- all of which began their fiscal years before Jan. 1 -- the chance to reduce the foreign cash they’ll accumulate this year and lower their taxes. A press release issued by the IRS on Monday indicates that “if done in the ordinary course of business,” the move won’t be considered as tax avoidance, according to Stephen Shay, a tax and business law professor at Harvard Law School. “The light is green for this planning, not red,” said Shay, a former top Treasury official. “It is great for those whose years beginning before 2018 are still open for the planning.”

  • Global Shipping Business Tied to Mitch McConnell, Secretary Elaine Chao Shrouded in Offshore Tax Haven

    February 5, 2018

    On June 6, 206, Majority Leader Mitch McConnell joined his wife, Elaine Chao, now the U.S. secretary of transportation, at a ceremony on the Harvard Business School campus to dedicate a new building emblazoned with the Chao family name. Funded by a $40 million gift from the Chao family and its foundation, the building would serve as a new hub for Harvard’s Executive Education program. But the family’s generosity appears to have come at the expense of taxpayers — the money, it turns out, would already have been in the public treasury had it not been sheltered from the government in complex offshore tax havens...The Marshall Islands’ corporate registry list both companies as still active. Stephen Shay, a tax expert and professor at Harvard Law School, said he does not believe that there would be anything illegal about a foundation’s public tax forms listing an offshore contributor at the address of its U.S. domestic parent company, although such a move “would not seem usual.”

  • Corporations may dodge billions in U.S. taxes through new loophole: experts

    January 12, 2018

    A loophole in the new U.S. tax law could allow multinational corporations like Apple Inc to avoid paying billions of dollars in taxes on profits stashed overseas, according to experts...By manipulating their foreign cash positions, a determining factor under the new law, a U.S. multinational could potentially save money by shifting profits to the lower rate from the higher one, according to Stephen Shay, a senior lecturer at Harvard Law School...“This is clearly the result of rushed legislation,” said Shay, formerly a top Treasury Department tax official.

  • G.O.P. Says Tax Bill Will Add Jobs in U.S. It May Yield More Hiring Abroad.

    January 8, 2018

    In Indiana, Missouri and Pennsylvania, President Trump used the same promise to sell the tax bill: It would bring jobs streaming back to struggling cities and towns...The bill that Mr. Trump signed, however, could actually make it attractive for companies to put more assembly lines on foreign soil...“Having such a low rate on foreign income is outrageous,” said Stephen E. Shay, a senior lecturer at Harvard Law School and a Treasury Department official during the Reagan and Obama administrations. “It creates terrible incentives.”

  • Trump promised ‘America First’ would keep jobs here. But the tax plan might push them overseas.

    December 15, 2017

    On the Friday before Thanksgiving, Kenny Johnson left the Nelson Global Products plant in Clinton, Tenn., for the last time. Having devoted nearly 13 years to making tractor-trailer exhaust pipes, Johnson, 41, spent some of his final weeks at the plant watching Mexican workers train to take his job...This was the kind of economic dislocation that President Trump vowed to prevent with his “America First” policies...“This bill is potentially more dangerous than our current system,” said Stephen Shay, a senior lecturer at Harvard Law School and former Treasury Department international tax expert in the Obama administration. “It creates a real incentive to shift real activity offshore.”

  • Republican Haste Warps Tax Bills

    November 29, 2017

    Any major tax bill has unintended consequences and hidden loopholes. But the current Republican tax effort just bristles with such potential miscues. It's a slipshod product, legislated with minimal transparency and analysis and with a premium on partisan politics. The Senate is slated to vote this week on a tax bill that's similar to the one the House passed on Nov. 16. Both call for huge tax cuts, primarily for corporations and upper-income individuals, with little, sometimes nothing, for many middle-class taxpayers. Both parade as tax reform, but do little to reorganize the tax system as the last real tax reform did in a bipartisan measure passed in 1986...Stephen Shay, a Harvard University law school lecturer, tax lawyer and former Treasury official, has predicted that the rushed legislation "will be rife with undiscovered loopholes that increase the windfalls and scope of the deficit." The Finance Committee did hold an Oct. 3 hearing, he noted, but it lacked substance and was "irrelevant except to permit the committee majority to say a hearing was held."

  • Haste on Tax Measures May Leave a Trail of Loopholes

    November 14, 2017

    “Slow down” is the last thing that supporters of the Republicans’ proposed tax overhaul want to hear...But the rush to “get it done” — particularly on the business side, where the most sweeping changes are planned — is alarming tax specialists who warn that new and unforeseen complexity, loopholes and glitches could come back to haunt tax collectors and taxpayers. “All of this is happening in an incredible rush, and frankly it’s absurd and incredibly poor governing to push a bill of this significance in the time frame they’re doing,” said Stephen E. Shay, a senior lecturer at Harvard Law School who worked in the Treasury Department during the Reagan and Obama administrations.

  • Leaked documents expose secret tale of Apple’s offshore island hop

    November 7, 2017

    ...The ICIJ showed the findings from its investigation to J. Richard Harvey, a Villanova University law professor, and Stephen Shay, senior lecturer at Harvard Law School. In 2013, both of them gave detailed testimony on Apple’s previous Irish structure to the U.S. Senate committee’s investigation. They both told the ICIJ it appeared likely the iPhone maker had transferred intangible assets to Ireland...Shay added: “By using Irish intangible property tax reliefs, Apple likely will pay little or no additional Irish tax for years to come on income at Apple Operations International.”

  • Experts Plumb Complexities of International Tax Policy

    October 19, 2017

    Questions over the taxation of multinational corporations are putting strain on the relationship between the United States and the European Union, experts said at a Center for European Studies event Wednesday...The future of dialogue between the United States and the EU on tax issues has become more fraught in the wake of new international policies promoted by President Donald Trump’s administration, according to Stephen E. Shay, a senior lecturer at the Law School. “I think there is a lot of room for dialogue and for improving U.S. tax relations, but I’m not sure that the current administration is particularly interested in investing a lot of time and energy doing it,” Shay said.

  • Republicans struggle with plan to stop companies from leaving the US

    October 6, 2017

    One key question looming over the Republican tax proposal is how it will keep companies from fleeing the U.S., the same problem that has pressured Republicans and Democrats to seek action and that President Trump has frequently pledged to fix. The uptick in corporate "inversions" and foreign takeovers, turning U.S. companies into Canadian, Irish and English businesses, has proved the top incentive for Congress to take on the monumental effort of overhauling the tax code...Stephen Shay, a Harvard Law School tax expert and former corporate tax lawyer, noted that if the global minimum tax is applied to corporations' total overseas profits, multinationals could game the system..."People like myself in my prior career can blend high and low rates, and in some cases this will incentivize foreign investment," Shay told senators.

  • U.S. Needs to Join the Race for Multinationals’ Tax Revenue, Experts Say

    October 4, 2017

    European Union regulators’ tax crackdown on Amazon.com Inc. -- like the EU’s case against Apple Inc. -- should spur U.S. policy makers to address companies’ aggressive offshore tax-avoidance strategies before it’s too late, experts said...The rate and formula for that tax haven’t been set, but experts note that the framework calls for it to be applied “on a global basis,’’ minus credits for foreign taxes paid -- suggesting that companies could blend their results from high-tax countries like Germany with low-tax countries like Ireland to even out their global effective rates. That wouldn’t do much to prevent profit shifting to tax havens, according to Harvard Law professor Stephen Shay, a former top U.S. Treasury Department official during the tax overhaul of 1986. Instead, Shay said during an appearance before the Senate Finance Committee Tuesday that a minimum tax should be calculated on a per-country basis, preferably at 80 percent of the corporate rate.

  • House tax chairman confident on reform, others less so

    August 22, 2017

    The top tax law writer in the U.S. House of Representatives insisted on Tuesday that tax reform will happen this year, despite concerns among some experts that a tax code overhaul could drag into 2018, or even collapse altogether. President Donald Trump is still seeking his first major legislative achievement and has focused on tax reform. But he has done little to advance it recently, amid constant distractions over Russia, North Korea and race relations..."The Republicans all agree on lower tax rates, just not on how to pay for them," said Stephen Shay, a Harvard Law School lecturer who advised on tax policy at the U.S. Treasury under former Democratic President Barack Obama. Shay put the odds of tax reform occurring before the November 2018 midterm congressional elections at 50-50.

  • Thomas Brennan at podium

    Focus and Perspective in Taxation: Tom Brennan receives the Stanley S. Surrey Professorship of Law

    April 13, 2017

    In a lecture marking his appointment as the Stanley S. Surrey Professor of Law at Harvard Law School, Tom Brennan ’01 delivered a talk titled “Focus and Perspective in Taxation," which addressed the issue of defining economic ownership and also the issue of uncertainty in future tax rates.

  • Trump’s Tax Overhaul Keeps Congress Waiting as Questions Pile Up

    April 6, 2017

    Eight weeks ago President Donald Trump said he would be releasing a “phenomenal” tax plan within two or three weeks. But there’s no sign of a plan yet, and mixed signals from the White House are imperiling Republican promises of speedy action. The administration hasn’t yet publicly answered the most basic questions about what a possible tax reform plan would look like. Will it pay for itself with offsets or add to the deficit? Trump hasn’t said...“I don’t think there’s clarity yet on who’s running the train,” said Stephen Shay, a senior lecturer at Harvard Law School, who was a senior tax official at Treasury during the last big tax overhaul under President Ronald Reagan. Referring to the current administration, Shay said “there’s nobody inside who has the knowledge base to put together tax reform.”

  • Wisconsin Sen. Johnson Defends Investment in Irish Company

    November 1, 2016

    Wisconsin Republican Sen. Ron Johnson on Monday defended his investment in an Irish company that distributes products made by the plastic manufacturer he used to own before being elected to the U.S. Senate in 2010...Not enough is known about what Johnson did to draw conclusions about whether he was dodging taxes, said Stephen Shay, a senior lecturer on law with a specialty on international taxation at Harvard Law School. "On the face of it, there is evident tax planning but not an apparent a clear tax issue," Shay told the AP. "The whole question is what's not on the face of it. ... We don't have the whole picture."

  • Small peek at returns doesn’t show context, experts say

    October 3, 2016

    The New York Times’ publication of part of Donald Trump’s tax returns only revealed a thin slice of the real estate mogul’s finances — not enough to draw conclusions about how much he’s paid in taxes over the years and nothing indicating any illegal nonpayment, experts said...But without seeing his returns from those years, or returns leading up to 1995, there’s no way to determine what he paid, said Stephen Shay, a Harvard Law professor and tax expert. “There still remains a large amount of information that would be needed — not the least of which would be the rest of his tax returns — in order to understand what to make of it,” Shay said.

  • Cravath fellows travel globally to experience international and comparative law

    April 15, 2016

    Thirteen Harvard Law School students were selected as the 2016 Cravath International Fellows. The fellows traveled to 12 countries for winter term clinical placements or independent research with an international, transnational, or comparative law focus. Below, four of those students are highlighted.

  • U.S. Plans to Curb Tax ‘Inversions’ Could Hurt Foreign Investment

    April 12, 2016

    Planned changes that President Barack Obama says are aimed at ensuring American companies do not avoid tax by shifting their headquarters overseas could also force foreign companies to adopt more conservative U.S. tax-planning strategies..."It, without doubt, significantly changes the rules of the game," said Stephen Shay, professor of law at Harvard University. "In the old days you bought and then you levered up as much as you can and that is not going to happen in the same way, but how much of a constraint that becomes is unclear," he added.

  • Pfizer and Allergan Are Said to End Merger as Tax Rules Tighten

    April 8, 2016

    Pfizer plans to abandon its $152 billion merger with Allergan — the largest deal yet aimed at helping an American company shed its United States corporate citizenship for a lower tax bill — just days after the Obama administration introduced new tax rules, a person briefed on the matter said late Tuesday...Though Pfizer and Allergan’s deal was less affected by earnings stripping, the potential consequences of the new Treasury rules could go well beyond corporate inversions, according to tax experts. “To me, the earnings stripping part of this is quite clearly the most significant of the changes they’ve put out,” said Stephen E. Shay, a senior lecturer at Harvard Law School and former deputy assistant secretary for international tax affairs in the Treasury Department.

  • Free Pfizer! Why Inversions Are Good for the U.S.

    April 8, 2016

    Donald J. Trump wants to build a bricks-and-mortar wall to keep immigrants out of the United States. President Obama wants to build a virtual wall to keep companies from leaving. Neither is likely to work. On Monday, the Treasury Department issued new regulations in an attempt to limit “inversions” — in which American companies are acquired by foreign companies, legally lowering the tax burden of American companies...the I.R.S. could declare some or all of Pfizer’s debt to be equity, so the interest payments would be dividends and no longer deductible. It’s important to note that the new earnings-stripping regulations apply not just for inversions, but for a vast array of multinationals’ transactions involving American businesses. This approach was proposed by the Harvard Law School professor Stephen E. Shay in 2014. Writing in Tax Notes, he argued that the Treasury secretary has “direct and powerful regulatory authority to reclassify debt as equity and thereby transform a deductible interest payment into a nondeductible dividend.”

  • Pfizer’s Eager to Go, but the Market Has Doubts

    March 14, 2016

    The stock market isn’t convinced that the biggest tax inversion merger on the horizon — Pfizer’s pending blockbuster deal with Allergan — will be concluded without major problems...Whether Pfizer would have more flexibility in using its overseas cash after the merger is an important question for the markets, but the answer is not yet clear. The Treasury is expected to issue further rules within the next several weeks. Stephen E. Shay, a professor at Harvard Law School, said the Treasury “has the prerogative to make a more muscular application of its administrative authority than they have already” regarding taxation of stranded cash controlled by a company like Pfizer.

  • Corporate Inversions Aren’t the Half of It

    February 11, 2016

    If you thought there was a problem with inversions — deals that allow American companies to relocate their headquarters to lower their tax bills — wait until you hear about the real secret to avoiding corporate taxes. It’s called earnings stripping, and it is a technique that the Obama administration has so far failed to stop. ...Still, an influential article by Stephen Shay, a Harvard law professor, has argued that the I.R.S. could act by adopting regulations that would term this type of debt equity. Under the tax rules, this would mean that the payments from the American subsidiary would now be nondeductible dividends rather than interest payments, ending this type of earnings stripping. The I.R.S. has said it was considering adopting earnings stripping rules in the near future, and this could be it.

  • Clinton aims to stop ‘earnings stripping’ to curb U.S. inversion deals

    December 10, 2015

    U.S. Democratic presidential candidate Hillary Clinton detailed plans on Wednesday to crack down on companies that shift profits overseas, a practice known as earnings stripping. Clinton is spending this week explaining how, if elected president in November 2016, she would address tax-avoiding “inversion” deals in which a company buys or merges with a foreign rival and relocates on paper to lower its U.S. tax bill...The Treasury Department, after a wave of inversion deals, announced new regulations in September 2014, targeting certain tax-avoidance deals. The regulations did not take on earnings stripping directly, but the department reserved the right to make any future regulation retroactive to that date."That was a signal to me that they thought they could do something by regulation," Harvard Law School lecturer Stephen Shay said in an interview. Shay said the "sentiment in the tax community today is yes there is regulatory authority to do something" about earnings stripping. Shay has written on the topic and has spoken to Clinton's campaign in recent weeks.

  • Treasury and I.R.S. Propose Rules to Curb Corporate Relocations for Tax Reasons

    November 20, 2015

    The Treasury Department and the Internal Revenue Service on Thursday issued new rules aimed at discouraging American companies from moving their headquarters abroad in search of lower tax rates. Increasingly, American companies have been trying to reduce their tax liabilities through a tactic known as a corporate inversion — buying smaller foreign competitors and using those purchases to move their headquarters to countries with more favorable tax rates than the United States’. ...Reaction to the rules, which were released late in the afternoon, was muted. Stephen E. Shay, a senior lecturer at Harvard Law School, said they were weaker than many people expected. “It’s not going to do anything to affect in any meaningful way the largest deal that is in front of them,” he said.

  • Revealed: how AstraZeneca avoids paying UK corporation tax

    October 5, 2015

    AstraZeneca, one of Britain’s largest businesses, is using a multimillion-pound tax avoidance scheme in the Netherlands, set up months after the UK relaxed its tax laws for multinationals in 2013...Stephen Shay, a senior law lecturer at Harvard Law School who has held senior tax roles in the US Treasury and who gave expert testimony in 2013 on Apple’s tax avoidance structures in a Senate investigation, said that it was “hard to say” how the companies in the Dutch structure “have a real commercial purpose other than to achieve the tax outcome”.

  • Heard on the Hill: Tribe on Clean Power Plan; Shay on international tax system; and Desai and Fogg on tax complexity

    March 16, 2015

    On Tuesday, March 17, two professors from Harvard Law School, Laurence Tribe ’66 and Stephen Shay, will testify before Senate committees. Last week, Harvard Law School Professor Mihir Desai and Visiting Clinical Professor T. Keith Fogg testified before the U.S. Senate Committee on Finance.

  • Banks of Tax Haven Mauritius Pursue Wealth Management

    February 27, 2015

    Mauritius has long played a unique role in international finance...The shift toward private banking may present challenges, says Stephen Shay, a professor of practice at Harvard Law School and former deputy assistant secretary for international tax affairs at the U.S. Department of the Treasury. "With such a robust financial intermediary industry already, the decision to expand into a more heavily regulated space is not without risks."

  • Inversions Are Last Step in Companies’ Tax-Avoidance Hopscotch

    December 12, 2014

    The surge in U.S. companies avoiding taxes by taking a foreign address has been condemned by President Barack Obama and stirred a policy debate in Congress. What’s often overlooked is that these “inversions” are typically a final step in a hopscotch of multinational tax dodging. ... The Organization for Economic Cooperation and Development, a group funded by governments around the world, is attempting to restrict profit shifting. Its initiatives could affect U.S. companies including Google Inc., Apple Inc., and Starbucks Corp. “Transfer pricing is the elephant in the room,” said Stephen E. Shay, former deputy assistant secretary for international tax affairs at the Obama Treasury Department, now a professor at Harvard Law School. “Transfer pricing is what makes inversions even more valuable.”

  • A Brake on Reincorporating Abroad via Mergers

    December 9, 2014

    For much of the year, Wall Street advisers were scrambling to engineer the cross-border transactions known as inversions. The result was billions of dollars in mergers and acquisitions, adding fuel to a banner year for deal-making. But an abrupt change to tax rules in September left the future of inversions in limbo...“It has elevated the issue of corporate tax avoidance to a public issue more than it has been in quite some time,” said Stephen E. Shay, a professor at Harvard Law School. “It’s also elevated the issue of anomalies in our tax rules and the need for reform.”

  • Tax Turnaround Time?

    November 24, 2014

    Proposals for reversing the corporate inversion trend bring home the need for tax reform.

  • Leaked Docs Expose More Than 340 Companies’ Tax Schemes In Luxembourg

    November 5, 2014

    Pepsi, IKEA, FedEx and 340 other international companies have secured secret deals from Luxembourg, allowing many of them to slash their global tax bills while maintaining little presence in the tiny Central European duchy, leaked documents show...“A Luxembourg structure is a way of stripping income from whatever country it comes from,’’ said Stephen E. Shay, a professor of international taxation at Harvard Law School and a former tax official in the U.S. Treasury Department. The Grand Duchy, he said, “combines enormous flexibility to set up tax reduction schemes, along with binding tax rulings that are unique. It’s like a magical fairyland.”

  • Minnesota companies shelter billions in cash from U.S. taxes

    November 2, 2014

    They are all companies that call Minnesota home: Medtronic, 3M, St. Jude Medical, General Mills and Ecolab. But they also all hold 90 percent or more of their cash outside the United States. Amid a growing national political debate over corporate tax avoidance, some of the Twin Cities’ biggest corporate citizens are accumulating giant stockpiles of money beyond America’s borders and, therefore, beyond the reach of the Internal Revenue Service...“It’s a game of chicken,” said Harvard Law School professor Stephen Shay, an authority on corporations’ tax avoidance. “They’re just waiting to have Congress give them a tax break.”

  • US hands foreign companies tax advantage

    September 26, 2014

    The Obama administration has handed foreign companies an advantage over American rivals because they will not be caught by new rules governing access to offshore cash....Stephen Shay, a Harvard Law School professor and former Treasury lawyer, said: “It shouldn’t matter whether the new [corporate] structure comes in the form of a new foreign acquirer or an inverted transaction. The fact is there is attempted avoidance of US tax on the offshore earnings either way.”

  • New Rules Make Inversions Less Lucrative, Experts Say

    September 24, 2014

    Inversions, the hottest deal structure on Wall Street, appear to be safe for now. But they just became less profitable and more difficult to pull off...But compared with some proposals that had been floated, the actions did not go as far as some had feared. “The objective is not to stop all these transactions,” said Stephen Shay, a professor at Harvard Law School. “The objective is to stop transactions that aren’t based on sound business objectives; it’s to stop transactions that are aimed at avoiding U.S. taxes. This is a good first step.”

  • Treasury’s Lew Says Anti-Inversion Decision Will Come Soon, But Offers No Hints About What Or When

    September 8, 2014

    In a speech today at the Tax Policy Center, Treasury Secretary Jack Lew said the agency will decide “in the very very near future” how it will respond to the recent wave of tax-motivated corporate inversions...After his presentation, a panel of tax and regulatory experts debated whether Treasury has the authority to act administratively against inversions and, if so, whether it should take such a step. Not surprisingly, the panelists disagreed...Even Steve Shay, who has been an outspoken advocate of Treasury action, acknowledged that regulations could only limit—but not stop—inversions. “Some deals would still go forward,” he said, “to the extent they are good business deals.”

  • Legal/Regulatory | Standard Deduction Court Challenge to New Inversion Rules Would Face Long Odds

    September 3, 2014

    The Treasury Department is considering new regulations that would make corporate inversions less profitable. Hedge fund managers, investment bankers and others are handicapping the timing and scope of any new rules and to whom they would apply. Possibilities include reclassifying certain debt held by United States subsidiaries of foreign corporations as equity, further limiting earnings stripping or restricting the repatriation of untaxed offshore cash from corporations that have gone through an inversion. Another question is whether any new regulations will hold up in court. Even Treasury Secretary Jacob J. Lew questioned whether his department had the legal authority to act unilaterally. But after Stephen Shay, a law professor at Harvard University, published an article urging Treasury to act, the department’s lawyers began developing some options. Mr. Shay suggested that by looking beyond Section 7874, the specific code section that addresses inversions, the Treasury might find other ways to curb some of the economic tax benefits of an inversion. In my view, Mr. Shay’s suggestions are indeed within the lawful authority of the Treasury Department.

  • Burger King maneuveres to cut US tax bill

    September 2, 2014

    Burger King may have taken a lot of flack in the past week for a deal that should curb its US tax bill but in many ways it is consistent with the burger chain's aggressive tax-reduction strategies in recent years…“I would be surprised if in five years' time, their tax rate does not come down reasonably dramatically,” said Professor Stephen Shay, from Harvard Law School, who has testified to Congress on corporate taxation.

  • Hedge Funds Hunting Clues in Treasury Tax-Inversion Limit

    August 29, 2014

    Treasury officials will be especially careful about what information they share with anyone who calls or asks questions, a former agency official said. “To the extent that you work on something that might be market-moving, you hunker down,” said Stephen Shay, who was the top Treasury Department international tax official earlier in Obama’s presidency. “Particularly when you don’t know what the decision’s going to be.” Shay, now a Harvard Law School professor, wrote a Tax Notes article in July urging the administration to think more broadly about its regulatory authority.

  • Top Tax Lawyers Mum on Inversion Debate (registration required)

    August 18, 2014

    More than a decade ago, when corporate inversions first came under scrutiny, a group of leading New York tax lawyers took a principled stand and called for urgent action to stop these deals….The deafening silence on the policy of inversions comes at a time when tax partners at corporate firms face mounting pressure to boost their revenues. “Because of the highly competitive legal environment, tax lawyers at major firms increasingly feel less free to speak their mind on tax policy issues than they did in the past,” says Stephen Shay, a professor at Harvard Law School who was a tax partner at Ropes & Gray for 22 years…Shay points out that the inversion discussion today is more complex than in 2002, when the deals under attack were more aggressive. Back then, companies could do a “naked inversion” by simply creating a foreign shell in a tax haven like the Cayman Islands.

  • Obama Explores Tax-Code Weapons in Inversion-Merger Fight

    August 11, 2014

    The Obama administration is exploring a range of possible weapons in the tax code to try to deter companies from relocating overseas for tax purposes through so-called inversion mergers…But the White House's position was upended in part by Harvard Law School Professor Stephen Shay, a former administration official who wrote an article on July 29, 2014, for Tax Notes, an influential publication in tax circles. In it, he outlined how the administration could change the tax code to "take the tax juice out of corporation expatriations." "I just started asking the question, 'What could be done with regulation rather than legislation,'" said Mr. Shay. His thoughts quickly reverberated at the top M&A firms and among officials in Washington. To clamp down on the benefits of inverting, he suggested, the Treasury could take aim at multiple parts of the tax code.

  • Meet the Law Professor Who’s Crashing the Inversion Party

    August 11, 2014

    Harvard Law School professor Stephen Shay may have single-handedly crashed the corporate inversion party. The U.S. Treasury Department has in recent days begun weighing how it could use its power to write regulations that would eliminate some of the key economic benefits U.S. corporations get when they acquire a non-U.S. company. Mr. Shay, who served for seven years in the Treasury during two different administrations and spent 22 years as a tax partner at Ropes & Gray LLP, appeared to be the first person to make the government aware of its powers to crack down on the advantageous tax treatment of inversions in an article published on July 29, 2014 in Tax Notes, a publication closely followed by tax professionals. “I just started asking the question, ‘What could be done with regulation rather than legislation’,” Mr. Shay said in an interview.

  • White House Weighs Actions to Deter Overseas Tax Flight

    August 11, 2014

    The Obama administration is weighing plans to circumvent Congress and act on its own to curtail tax benefits for United States companies that relocate overseas to lower their tax bills, seeking to stanch a recent wave of so-called corporate inversions, Treasury Secretary Jacob J. Lew said on Tuesday…Just days after the president’s speech, Stephen E. Shay, a former Obama administration Treasury Department official who now teaches at Harvard Law School, suggested in an article in the trade journal Tax Notes that it was within Mr. Obama’s power to act alone. “I’m really concerned that we are losing a significant portion of our corporate tax base that you’re not going to get back,” Mr. Shay said.

  • Barack Obama could curb corporate ‘inversions’ on his own: Ex-US official

    August 5, 2014

    President Barack Obama could act without congressional approval to limit a key incentive for US corporations to move their tax domiciles abroad in so-called "inversion" deals, a former senior US Treasury Department official said on Monday. By invoking a 1969 tax law, Obama could bypass congressional gridlock and restrict foreign tax-domiciled U.S companies from using inter-company loans and interest deductions to cut their US tax bills, said Stephen Shay, former deputy assistant Treasury secretary for international tax affairs in the Obama administration.