Stephen Shay

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."

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.

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 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.

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.”

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.

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.

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.

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.

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”.

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.

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."

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.”

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.”

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.”

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.”

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.”

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.”

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.”