Illinois parts-maker fights U.S. IRS over cross-border tax deal
By Patrick Temple-West
WASHINGTON, June 9 (Reuters) - The U.S. Internal Revenue Service and manufacturer Illinois Tool Works Inc are battling in U.S. Tax Court over a $356.8 million dispute that highlights a type of cross-border tax avoidance strategy facing increased scrutiny worldwide.
As governments crack down on tax-driven profit-shifting, the IRS is asserting that a loan used by Illinois Tool to bring foreign cash from a Bermuda-based subsidiary into the United States was not a tax-free transaction.
Instead, the IRS argues that the transaction was a repatriation of foreign profits equivalent to a taxable dividend-style distribution.
A victory for the IRS in the case would jeopardize similar transactions undertaken on a tax-free basis, tax lawyers say.
"This is foreign tax planning 101 ... Every Fortune 500 company in America that is multinational does this," said Jasper Cummings, a tax lawyer for Alston & Bird LLP, who reviewed the case for Reuters.
"If the IRS wins this, it will be a hell of a win," he said.
The Glenview, Illinois-based diversified manufacturer, which makes everything from vehicle parts to food service equipment to arc welding tools, filed its Tax Court petition last month, challenging the tax agency's position.
Illinois Tool said it could owe $70 million if it loses the case, according to a May regulatory filing. No trial date has been scheduled. Continuación...