Democrats Urge US Treasury Action On Inversions
Seven leading Democrat lawmakers wrote a letter on September 12 to US Treasury Secretary Jack Lew urging him to publish an annual list of companies that have undertaken corporate tax inversions, and to use the Administration’s executive authority further to discourage the use of inversion techniques.
Tax inversion techniques are being used by some US multinationals to move their tax residences abroad – away from the high 35 percent US headline federal corporate tax rate – and to unlock their unrepatriated earnings held offshore.
In the letter, Rosa DeLauro (D – Connecticut), Dick Durbin (D – Illinois), Sander Levin (D – Michigan), Jack Reed (D – Rhode Island), Sheldon Whitehouse (D – Rhode Island), Elizabeth Warren (D – Massachusetts) and Lloyd Doggett (D – Texas) pointed out that inverting companies “seek to renounce their citizenship to skirt paying taxes for the very services they benefit from.”
In September last year, Lew introduced non-legislative measures to deter inversions, which were aimed, in particular, at preventing the methods by which inverted companies access a foreign subsidiary’s unrepatriated earnings while continuing to defer US tax.
The letter recommended that the Treasury should now go further. In particular, it urged that an annual list should be published of inverted companies, and that if the Treasury “is unable to do this under current law, please advise us what statutory changes are needed to permit such a disclosure.”
The lawmakers who signed the letter are co-sponsors of legislation that would extend the ban on federal contracts being given to companies that engage in inversion techniques.
Finally, they also maintained that the Treasury could use its “broad authority” under the Section 385 of the US tax code to curb the practice of “earnings stripping” whereby domestic subsidiaries borrow from their new foreign parent company to increase their interest payments. The lawmakers believe that Treasury could use Section 385 to “recharacterize debt as equity for inverted corporations” and “remove a strong incentive to invert.”
