Congress told to act fast on offshore tax deals
The Obama administration called for immediate congressional action to stop U.S. companies from using cross-border mergers to escape the country's tax system, the latest trend in corporate deal-making.
In a letter calling for a “new sense of economic patriotism,” Treasury Secretary Jacob J. Lew said Congress should pass tax changes retroactive to May.
Senate Majority Leader Harry Reid on Wednesday said he wants to advance legislation proposed by Sen. Carl Levin of Michigan and that it's taken too long. White House Press Secretary Josh Earnest said President Obama will discuss the issue more in the weeks ahead.
“We should prevent companies from effectively renouncing their citizenship to get out of paying taxes,” Lew wrote in the letter to top congressional tax writers, which was dated Tuesday. “We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes.”
The mergers used to legally avoid taxes, known as inversion transactions, have become increasingly popular during the past year, particularly in the pharmaceutical industry. Companies including Minneapolis-based Medtronic Inc. and Canonsburg-based Mylan Inc. have announced plans to move their legal addresses outside the United States.
Pfizer Inc., based in New York, attempted to move its tax address to the U.K. by purchasing London-based AstraZeneca Plc.
Rep. Rosa DeLauro, a Connecticut Democrat, persuaded the House to adopt an amendment last week barring companies that moved their legal address to Bermuda or the Cayman Islands from getting some federal contracts.
The amendment would apply to only a few companies, and DeLauro said she'll expand her proposal to affect all companies that move their address overseas to avoid taxes.
“It is all about tax dodging and being a tax cheat,” she said.
Still, Lew's letter and the Democrats' actions may not be enough to prompt Congress to move quickly.
Three Senate Finance Committee Republicans — Orrin Hatch of Utah, Mike Crapo of Idaho and Rob Portman of Ohio — said they had no interest in moving stand-alone legislation to stop inversions.
“I would be very disappointed if the administration believes the answer to dealing with companies going offshore is to make it harder to be an American company,” Portman said, adding that the proposal would encourage companies in other countries to buy U.S. businesses and push jobs overseas. “We need tax reform.”