Poll: US Voters Back Congressional Action on Inversionsby
A new Wall Street Journal/NBC poll found that there is broad support among registered voters for Congress to enact legislation that would curb the practice of US companies shifting their headquarters overseas to cut their US tax bill.
According to the results of the poll, which was conducted from Sept. 3 to 7, 59 percent of respondents believe that congressional action should be taken to “penalize and discourage” companies from using the controversial tactic known as an inversion because it results in lost revenues in the United States.
Thirty-two percent of respondents said Congress should not take action because these companies have a “duty to their shareholders to lower costs and grow their business.” Nine percent were not sure.
An inversion occurs when a US company acquires a foreign firm and then reincorporates its headquarters overseas into a lower-tax jurisdiction, according to the Wall Street Journal. This allows the new entity to lower its corporate tax bill, even if it retains much of its business operations in the United States. The practice is legal and can be a windfall for companies, bankers, and others involved in the structure.
The Obama administration is concerned that the pace of deals involving inversions has accelerated in recent months, with an increasing number of corporations on the verge of completing such mergers and others across a variety of industries that are in the works.
The White House and US Treasury Department officials have been working behind the scenes for several weeks on ways the administration can curb inversions.
During a speech at the Urban Institute on Monday, Treasury Secretary Jacob Lew said that although the tactic is legal, inversions are “wrong” and the nation’s tax laws should change. He stressed the importance for Congress to pass legislation that would “solve this problem.”
“It is imperative that lawmakers get this done,” Lew said, who added that any legislation should work retroactively, applying to any deal after early May 2014.
But the Treasury secretary noted that the administration is “clear-eyed” about the possibility that Congress may not move quickly enough to respond to the growing wave of inversions.
“Given that, the Treasury Department is completing an evaluation of what we can do to make these deals less economically appealing, and we plan to make a decision in the very near future,” Lew said. “Any action we take will have a strong legal and policy basis, but will not be a substitute for meaningful legislation – it can only address part of the economics. Only a change in the law can shut the door, and only tax reform can solve the problems in our tax code that leads to inversions.”
Senate Working to ‘Take the Juice’ Out of Inversions
The Senate’s top tax writer, Sen. Ron Wyden (D-OR), said on Tuesday he is working with Sen. Orrin Hatch (R-UT), the top Republican on the Senate Finance Committee, on a short-term bipartisan bill that will “take the juice” out of inversions and make them “less attractive.”
“Without a bipartisan stopgap measure in place, we run the risk of having our business tax base eroded, leaving mainstream American companies and families holding the bill,” said Wyden, who is the chairman of the Senate Finance Committee.
On Wednesday, Sens. Charles Schumer (D-NY) and Richard Durbin (D-IL) unveiled anti-inversion legislation that removes a key incentive for companies to invert, known as earnings stripping. In earnings stripping, inverted companies load their US subsidiary up with excessive debt that is “owed” to the foreign headquarters so they can deduct interest payments on this debt, further allowing the company to avoid paying US taxes, according to the two lawmakers.
The bill addresses the practice of earnings stripping by inverted companies in two ways, according to a press release: First, it will serve as a deterrent for those considering an inversion, as they will no longer see that opportunity to avoid US taxation post-inversion. Second, it will ensure the earliest invertors do not have a competitive advantage over their US counterparts, applying to their future related-party transactions, as well.
“This bill curtails the incentive for companies to use shady accounting gimmicks to avoid paying their US tax obligations,” Schumer said in a written statement. “The only way to solve this problem for good is passing legislation, and our preference is to work with our Republican colleagues to pass a strong bill.”
Republicans, however, 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.