House Democrats Introduce Legislation to Tighten Restrictions on Corporate Tax Inversions
WASHINGTON – A group of nearly a dozen House Democrats today introduced legislation to tighten restrictions on corporate tax inversions, limiting the ability of American companies to avoid U.S. taxation by combining with a smaller foreign business and moving their tax domicile overseas. The House legislation - the “Stop Corporate Inversions Act of 2014” (H.R. 4679) – and companion Senate legislation introduced today by U.S. Sen. Carl Levin (D-MI) largely mirror the inversion proposal included in the President’s FY 2015 budget.
Co-sponsors of the legislation include Ways and Means Committee Ranking Member Sander Levin (D-MI), Rep. Charles Rangel (D-NY), Rep. Jim McDermott (D-WA), Rep. Richard E. Neal (D-MA), Rep. Lloyd Doggett (D-TX), Rep. John Larson (D-CT), Rep. Danny K. Davis (D-IL), Budget Committee Ranking Member Chris Van Hollen (D-MD), Rep. Rosa DeLauro (D-CT), and Rep. Jan Schakowsky (D-IL).
There have been more than 40 corporate inversions in the last decade, costing the U.S. tax base billions of dollars. The Treasury Department estimates that the President’s FY 2015 budget proposal on inversions would raise $17 billion in revenue over the next decade.
Under current law, a corporate inversion will not be respected for U.S. tax purposes if 80 percent or more of the new combined corporation (incorporated offshore) is owned by historic shareholders of the U.S. corporation. The bill would make it harder for U.S. companies to invert by reducing this threshold from 80 percent or more to more than 50 percent. This would effectively require U.S. companies to merge with foreign companies that are roughly equal or larger in size in order to move their location for tax purposes outside the United States and, thereby, escape U.S. tax.
The legislation would apply to inversions completed after May 8, 2014.
“Corporate inversions are a growing problem, costing the U.S. tax base billions of dollars and undermining vital domestic investments,” said Ranking Member Levin. “This egregious practice requires immediate action. This legislation would stop American companies from avoiding U.S. taxes simply by purchasing a smaller foreign company.”
"Inversion transactions are the newest trick of corporations to avoid paying U.S. taxes," said Rep. Charles Rangel. "Companies are doing the math and know that they can save millions of dollars each year. We cannot stand by and allow this to continue. This is not going to change unless the law is changed and we need to act now."
"I have been working on ending these inversions for more than a decade," said Rep. Neal. "In the time since Congress last legislated in this area, companies have become more sophisticated in their tax avoidance schemes. The failure of tax reform has only exacerbated this problem. It is imperative that we stop these inversions immediately, and this legislation accomplishes that goal."
“To those corporations who renounce their American citizenship to dodge their fair share of our national security costs, this legislation says ‘stop: no get-out-of-taxes-free card,’” said Rep. Doggett. “By exploiting other tax loopholes, Pfizer already pays little in federal taxes, but its proposed inversion to pay even less goes much too far. Congress should act now to prevent multinationals from demanding the benefits of being American without paying for them.”
“This bill is about fairness,” said Rep. Davis. “At its heart it says that America should not have two sets of rules: one for ordinary folks and one for those with armies of lawyers who can skirt and bend the law to avoid paying their fair share of taxes. This is a notion so fundamental to our democracy it seems it should be self-evident. The existence of the two sets of rules helped bring on the Great Recession that most of us are still struggling to recover from. This bill is not a cure-all but it is a common sense response to a very real and glaring inequity in our tax code.”
“Americans want and deserve a tax code that rewards companies for locating and investing in the United States,” said Ranking Member Van Hollen. “Permitting U.S. companies to pretend that they’re based in other countries purely for tax purposes is a loophole that should not be tolerated. I’m pleased to join Mr. Levin and my colleagues on this important legislation.”
“We can’t continue to stand by idly while companies avoid taxes at the expense of everyone else,” said Rep. Rosa DeLauro. “Ending these kinds of games is a common-sense idea that has bipartisan support and should be law. I am proud to stand beside Congressman Levin in introducing this bill and urge our colleagues to join us.”
“U.S. Corporations benefit from tax-payer funded research, our transportation infrastructure, our top-rate education system and the productive employees it produces, and our world-leading economy,” said Rep. Schakowsky. “Yet many of these corporations have used inversions to avoid their fair share of U.S. taxes – taxes that pay for the investments that have helped them profit and thrive. This legislation will help address that issue and ensure that the corporate giants supported by the U.S. economy meet their tax obligations.”