Tax Inversion Lobbying Booms as Corporations Fight Obama

The number of companies lobbying the U.S. government on tax inversions more than doubled in the quarter ended Sept. 30, as they sought to prevent Congress and the Obama administration from imposing new restrictions.

Novartis AG (NOVN), SAP SE, and Eaton Corp Plc (ETN) were among companies that began lobbying on inversions and related issues after July 1. They could be affected by limits preventing them from loading U.S. subsidiaries with deductible debt. Companies with pending inversion deals, including Medtronic Inc. (MDT) and Mylan Inc. (MYL), also lobbied on the issue.

The administration acted on Sept. 22, proposing rules that limited companies’ ability to use untaxed offshore profits if they undergo an inversion.

In the most recent quarter, 41 companies reported they lobbied on the issue, up from 16 in the previous quarter. They employed at least seven former members of Congress and former chiefs of staff to the chairman and top Republican on the Senate Finance Committee. The reports were due yesterday.

Tax Inversion

“The political rhetoric coming out of Congress and the administration on this issue has got many historic foreign companies concerned,” said Nancy McLernon, chief executive officer of the Organization for International Investment, a Washington-based group that represents foreign companies. “The collateral damage the proposals might have are getting some air time.”

Drew Attention

The quarter included a period when tax inversions moved from an obsession of merger advisers and tax policy experts to a political hot button that drew the attention of President Barack Obama and Treasury Secretary Jacob J. Lew.

In an inversion, a U.S.-based company changes its address to a foreign country and pays a lower tax rate, typically without relocating its executives or operations. Obama and Lew have said the practice is wrong and they’ve been urging changes.

U.S. companies have completed 14 inversions since the beginning of 2012, and seven companies have pending deals, including Chiquita Brands International Inc. (CQB) and Steris Corp. (STE)

Congress remains deadlocked over the issue and even the Democratic-controlled Senate hasn’t voted on an Obama-backed plan to prevent companies from buying a smaller business and taking its foreign address in the process.

Unraveled Deals

The new rules announced Sept. 22 led Medtronic to seek more expensive financing and unraveled three deals, including AbbVie Inc. (ABBV)’s planned purchase of Shire Plc, which would have been the largest inversion in U.S. history.

The administration is considering further rules to limit so-called earnings stripping, the post-inversion maneuvers companies can use to push profits out of the U.S.

Companies based overseas with significant operations in the U.S. are concerned about how any changes would affect them.

Those companies already face limits on interest deductions, McLernon said. Further changes, along with potential restrictions on government contracts, could penalize some companies that aren’t the intended targets, she said.

In most cases, the lobbying reports don’t specify how much money companies are spending on the inversions issue because the totals also include their efforts on unrelated matters.

The reports do show the lobbyists’ connections.

Former senators John Breaux, Trent Lott and Don Nickles are all lobbying for Medtronic, the Minneapolis-based medical device company.