News Feature | August 11, 2014

Proposed Legislation Aims To Scuttle Tax Inversion Deals

By Jof Enriquez,
Follow me on Twitter @jofenriq

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United States lawmakers have introduced a new bill that could make it tougher for U.S. companies to carry out so-called tax inversion deals.

The measure called the “No Federal Contracts for Corporate Deserters Act” — filed recently in Congress by Sen. Carl Levin (D-Mich.), Sen. Richard Durbin (D-Ill.), Rep. Rosa DeLauro (D-Conn.), and Rep. Lloyd Doggett (D-Tex.) — seeks to prohibit U.S. government agencies from doing business with American firms that move overseas to pay less taxes. The companies targeted by the legislation are at least 50 percent owned by U.S. shareholders and have no significant business interests in the country in which they seek relocation, according to The Washington Post.  

“With every successful inversion, the tax burden increases on the rest of us to pay what the corporate inverter doesn’t,” Sen. Durbin said in a statement, according to The New York Times. “The burden is made worse by allowing companies to profit off of federal contracts paid for by U.S. taxpayers, while those very companies run from their U.S. tax responsibility. We should make permanent the longstanding ban on federal contracts for corporations that have renounced their American corporate citizenship.”

Sen. Levin is also sponsoring a separate bill to curb what he described in a statement as a “tax loophole.” The “Stop Corporate Inversions Act of 2014” seeks to raise the needed percentage change in stock ownership of U.S. firms wanting to invert from 20 percent to 50 percent, the statement said. The bill also calls for a two-year moratorium on inversions as a stop-gap solution so a long-term corporate tax overhaul is constructed by Congress.

The U.S. Department of the Treasury is also looking into how to curb the controversial tactic under existing tax and financial policies. A spokesperson said recently that the department is “reviewing a broad range of authorities for possible administrative actions that could limit the ability of companies to engage in inversions, as well as approaches that could meaningfully reduce the tax benefits after inversions take place,” according to the Wall Street Journal.

Although inversions have been done before, the practice has increased recently among large healthcare and medical device companies, prompting increased governmental scrutiny. Among the biggest deals include the Medtronic-Covidien merger, which company executives describe as a strategic move rather than one made for purely inversion purposes. The deal — which is expected to close late this year or early 2015 — will push through even if it cannot be done as an inversion, said Medtronic CFO Gary Ellis, according to The Street.

The Joint Commission on Taxation estimates that the U.S. Treasury could lose $20 billion in corporate taxes over the next 10 years because of pending inversion deals, the Washington Post reported. In the article, the Post cited a report from the Congressional Research Service, which listed 47 American companies that have transferred their corporate base abroad since 2003 — almost double the number from 20 years prior.