Democratic lawmakers Tuesday pushed legislation to stop U.S. companies from reincorporating overseas to reduce their tax bills, saying a wave of so-called inversions last year has nearly doubled the revenue the federal government will lose from those moves over the next decade.
The bill would make it tougher for U.S. firms to buy a smaller foreign competitor in a lower-tax nation and shift the merged company's headquarters there for tax purposes.
The maneuver gained popularity last year with several high-profile deals, such as Burger King Worldwide Inc.'s purchase of Canadian coffee-and-doughnut chain Tim Hortons.
“When corporations invert, they renounce their American citizenship and don’t pay their fair share of taxes, leaving the rest of us to pick up the tab. That isn’t right,” Sen. Richard Durbin (D-Ill) said as he joined three other lawmakers in pushing for a bill they first introduced last year.
“Today, we are putting these corporate tax deserters on notice: We are not going to stand by while they game the tax code and avoid their responsibility to our country," he said.
Durbin was joined by Sen. Jack Reed (D-R.I.), Rep. Sander Levin (D-Mich.) and Lloyd Doggett (D-Texas).
The legislation would change tax rules to make inversions more difficult, such as requiring a company to have at least 50% foreign ownership instead of the current 20% in order to be considered foreign for U.S. tax purposes.
A similar bill was introduced last year, based on a proposal in President Obama's budget. At the time, Congress' nonpartisan Joint Committee on Taxation estimated the bill would generate $19.5 billion in tax revenue over the next 10 years that would be lost through the maneuvers.
Now, after the size and pace of corporate inversions picked up last summer, the committee estimated the legislation would produce $33.6 billion in additional revenue over the same period.
"This is not defensible," Levin, the chief House sponsor of the legislation, said of tax inversions. "And it's $33 billion worth of in-defensibility."
The earlier estimate was based on the pace of activity as of late 2013 and "did not properly reflect the appetite of some U.S. corporations for inversions," the committee's chief of staff, Thomas Barthold, wrote last month in updating the projection.
The Obama administration took executive action in September to try to limit inversions.
The technical changes in the tax code were designed to reduce the allure by eliminating some accompanying practices, such as so-called hopscotch loans that companies with foreign headquarters use to gain tax-free access to some earnings.
Those changes led Illinois drug maker AbbVie Inc. to pull out of a deal to buy European rival Shire because the financial benefits of the deal were reduced. AbbVie had planned to reincorporate on the British island of Jersey, which has no corporate income tax.
Republicans argue companies are inverting because the 35% corporate tax rate in the U.S. is the highest among the world's most advanced economies. Key GOP lawmakers said inversions should be dealt with as part of a broader overhaul of the U.S. corporate tax code.
Democrats and Republicans both want to lower the corporate tax rate, but differ sharply on how to do it.
Levin said said "tax reform is important but we should not wait" to close what he called the inversion loophole.
But with Republicans now in control of both chambers of Congress, the Democratic legislation is unlikely to advance on its own. Durbin said he hoped to attach it an as amendment to other legislation to improve its chances of being enacted.
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