Pennsylvania may soon join the other states that have challenged the use of the so-called Delaware Loophole, according to our colleagues at the State and Local Tax Blawg. The legislation, contained in Pa. House Bill 2150, would disallow deductions that a parent operating corporation claims for royalty payments made to a “Delaware Holding Company.”
The new limitation would not apply where the transaction is related to “a valid business purpose.” In this regard, the legislation defines a valid business purpose as, “[a] purpose, other than the avoidance or reduction of taxation, which alone or in combination with other purposes constitute the primary motivation for a business activity or transaction which changes in a meaningful way, apart from a reduction of taxation, the economic position of the taxpayer.” (more…)
