Corporate Tax Evasion Strategy Debated in Senate
Large American corporations are bailing left and right out of the United States for (tax free) greener pastures overseas. The problem has both Democrats and Republicans on Capitol Hill seriously concerned as far as its implications for the U.S. Treasury and the government’s ability to fund programs. But the two sides can’t agree on how to fix the problem.
Democrats in the Senate have introduced reform measures based on a White House plan that calls for amending the tax code to discourage so-called corporate inversions. Currently, U.S. businesses can claim they are foreign owned if only 20% of it is actually the property of overseas investors.
President Barack Obama says this ceiling should be raised to 50% foreign ownership to slow down the rate of companies leaving the country.
Just last week, U.S. pharmaceutical manufacturer AbbVie Inc. announced its $55 billion deal with European rival Shire. The drug maker now plans to reincorporate on the British island of Jersey, where pretty much every day is corporate tax holiday for businesses.
Democratic lawmakers like Senator Ron Wyden of Oregon insist Congress needs to act fast before more and more corporations leave the U.S. for good.
“Absent tax reform being enacted immediately, what happens if the inversion virus leads to 20 more inversions over the summer” Wyden said at a congressional hearing on taxes. “How many more infections can America’s economic body endure?”
Robert B. Stack, deputy assistant Treasury secretary for international tax affairs, acknowledged that “many more inversions are in the works.”
Republicans agree something needs to be done to keep big business from leaving. But they prefer a carrot rather than stick approach, and that it be accomplished as part of a massive tax overhaul. Democrats say that would be kicking the proverbial can down the road, and insist that quick action be taken.
“My concern is that tax reform is moving slowly, inversions are moving rapidly and that is a prescription for chaos,” said Wyden.
Senator Orrin Hatch (R-Utah), the senior GOP member of the Senate Committee on Finance, has described the Democrats’ plan as “punitive and retroactive,” because it would apply to deals that happened in May as well as those afterwards.
“Rather than incentivizing American companies to remain in the U.S., these bills would build walls around U.S. corporations in order to keep them from inverting,” Hatch said. “This approach, in my view, completely misses the mark.”
To Learn More:
Key Senate Democrat Urges Action to Limit Tax Inversion 'Virus' (by Jim Puzzanghera, Los Angeles Times)
Congress Is Split on Taxing of Corporate Inversions (by Kristina Peterson, Wall Street Journal)
Treasury Urges End to Foreign Tax Flights, but Quick Action Is Unlikely (by David Gelles, New York Times)
Pfizer, Chiquita and Medtronic Try to Merge with Foreign Firms to Avoid U.S. Taxes (by Noel Brinkerhoff and Steve Straehley, AllGov)
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