The president of the New York State Society of CPAs (NYSSCPA) responded on Friday to comments made by President Obama, who during a press conference last week seemed to blame accountants for the number of American corporations using inversions to reduce their US tax obligation.
As first reported by Accounting Today, during the US-Africa Leaders Summit in Washington, DC, on August 6, President Obama responded to a question from Margaret Talev of Bloomberg about his administration possibly using its executive branch authority to stop the practice of US companies shifting their headquarters overseas to cut their US tax bills.
“Just to review why we’re concerned here. You have accountants going to some big corporations – multinational corporations but that are clearly US-based and have the bulk of their operations in the United States,” the president said. “And these accountants are saying, you know what, we found a great loophole: If you just flip your citizenship to another country, even though it’s just a paper transaction, we think we can get you out of paying a whole bunch of taxes.
“Well, it’s not fair. It’s not right. The lost revenue to Treasury means it’s got to be made up somewhere, and that typically is going to be a bunch of hardworking Americans who either pay through higher taxes themselves or through reduced services,” President Obama continued. “And in the meantime, the company is still using all the services and all the benefits of effectively being a US corporation. They just decided that they’d go through this paper exercise.”
In a statement released on August 8, NYSSCPA President Scott Adair said: “As president of the New York State Society of Certified Public Accountants, I believe President Obama should be aware that US corporations hire accountants for their distinct ability and expertise in seeing that clients fulfill their tax obligations as required by the laws adopted by Congress. In fact, it is a CPA’s unique ability to legally navigate an extraordinarily complex tax code that makes CPAs’ services so valuable to their individual and corporate clients.
“If President Obama wants to point fingers, perhaps he should point them at Congress for creating the very loopholes he vilifies,” he continued. “Sustainable corporate tax reform is the elephant in this room. President Obama’s goals would be best served by looking to his fellow lawmakers if he wants a solution to this problem. The accounting profession stands ready to help.”
Options are Being Explored to Curb Inversions
The New York Timesreported on August 5 that the Obama administration is weighing plans to circumvent Congress and act on its own to curtail inversions. According to Treasury Secretary Jacob J. Lew, the US Treasury Department is rushing to assemble an array of options that would essentially wipe out the economic incentive for such deals.
“The question is: Can we do enough that it will materially change the economics of inversions so that companies will make different decisions?” Lew said, according to the New York Times article. “The things we are looking at look to me like they could very materially change the economics of inversions.”
While Lew said legislation was the “best solution” to addressing the issue, the recent flood of inversions has persuaded President Obama’s team that a quicker response may be necessary. A Bloomberg analysis estimated American companies are parking as much as $2 trillion in cash overseas.
“If Congress doesn’t act, we can’t wait for months or years to go by and just watch companies make decisions as if nothing will change,” Lew said, according to the article.
Senator Carl Levin (D-MI) and his brother, Representative Sander Levin (D-MI), introduced legislation in the Senate and House, respectively, in May aimed at curbing mergers that involve inversions. Both bills largely mirror an anti-inversion proposal by President Obama in his fiscal-year 2015 budget that would raise $17 billion for the government over the next decade. The legislation would apply to inversions completed after May 8, 2014.
However, Republicans contend that the best way to keep US firms from leaving is an overhaul of the US tax code that includes a reduction of the 35 percent corporate tax rate, which is the highest in any of the world’s developed economies.
President Obama said last Wednesday that his administration is examining whether there are elements to “how existing statutes are interpreted by rule or by regulation or tradition or practice that can at least discourage some of the folks who may be trying to take advantage of this loophole.”
“Keep in mind, it’s still a small number of companies that are resorting to this because I think most American companies are proud to be American, recognize the benefits of being American, and are responsible actors and willing to pay their fair share of taxes to support all the benefits that they receive from being here,” President Obama said. “But we don't want to see this trend grow. We don't want companies who have up until now been playing by the rules suddenly looking over their shoulder and saying, you know what, some of our competitors are gaming the system and we need to do it, too. That kind of herd mentality I think is something we want to avoid. So we want to move quickly – as quickly as possible.”