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Treasury Dept. Tightens Corp. Tax Rules Amid 'Panama Papers' Backlash

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MIAMI (CBSMiami) --  The Treasury Department is making it harder for corporations to use tax loopholes following a massive leak dubbed the 'Panama Papers' that shows how the rich and famous hid billions of dollars offshore.

On Tuesday, the department announced new regulations taking aim at one of the more popular tax loopholes - corporate inversions.

The way it works is a company looking to avoid paying taxes in the United States moves its tax residence overseas on paper and it's usually to a country with a low tax.

"In layman's terms it's when big corporations acquire small companies and then change their address to another country on paper in order to get out of paying their fair share of taxes here at home," said President Barack Obama.

According to the department, this erodes the American tax base and leaves the middle class and small businesses with the bill.

"They declare they are based somewhere else thereby getting all the rewards of being an American company without fulfilling the responsibilities to pay their taxes," said Obama. "It sticks the rest of us with the tab."

Related: 'Panama Papers' Chilling Effect On Miami's Housing Market

The treasury is also proposing a new rule to prevent something called "earnings stripping." That's when a company moves its tax residence overseas and the U.S. portion of that company can take a loan from its foreign counterpart. By doing this, the U.S. portion of that company reduces it tax bills without the loans showing up on their earnings.

Meantime,the president is calling on Congress to do more to stop the inversions, reiterating his administration has proposed to fully close the loopholes in his last three budget proposals.

The new rules come after what is being considered the 'the Wikileaks of the mega-rich' and its had worldwide effects.

In Iceland, demonstrators are calling for the prime minister who was named in the 'Panama Papers' investigations. He will resign amid the controversy becoming the first to do so since the documents leaked.

He is just one of a dozen current and former heads of state who allegedly stashed away wealth and used off-shore accounts.

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