Sep 22, 2014 6:43 PM
US cracks down on companies moving overseas
The Associated Press
WASHINGTON (AP) The Obama administration cracked down Monday on so-called tax inversions, aiming to curb a spate of American companies shifting overseas in an attempt to shirk paying U.S. taxes.
New regulations from the Treasury Department will make inversions less lucrative by barring creative techniques that companies use to lower their tax bill. Additionally, the U.S. will make it harder for companies to move overseas in the first place by tightening the requirements they must meet.
"This action will significantly diminish the ability of inverted companies to escape U.S. taxation," said Treasury Secretary Jacob Lew. He added that for some companies considering inversions, the new measures would mean inverting would "no longer make economic sense."
President Barack Obama said he was glad Treasury was taking steps to reverse the trend of companies seeking to "exploit this loophole" to avoid paying their fair share in taxes. Yet he said he was still calling on Congress to pursue broader tax reform that would reduce the corporate tax rate, close loopholes and make the tax code simpler.
"While there's no substitute for Congressional action, my administration will act wherever we can to protect the progress the American people have worked so hard to bring about," Obama said in a statement.
Monday's announcement puts companies on notice that Treasury will be drafting regulations to clamp down, but the new measures will take effect immediately even while those regulations are pending. That means any transactions from Tuesday onward will be subject to the tougher restrictions.
About 50 U.S. companies have carried out inversions in the past decade, and more are considering it, according to the nonpartisan Congressional Research Service. The recent wave of inversions has been dominated by health care companies, including drugmaker AbbVie, which has announced plans to merge with a drug company incorporated in Britain.
In August, Burger King announced that it will acquire Tim Hortons, the Canadian coffee and doughnut chain. Burger King executives insist they are not trying to escape U.S. taxes. But some members Congress are skeptical, mainly because the corporate headquarters of the new parent company will be in Canada.
Several Democrats in Congress have announced bills to make it harder for U.S. corporations to carry out inversions, and Obama included provisions in his 2015 budget request to limit inversions. But the administration placed a more aggressive focus on the issue this summer as a number of high profile mergers and potential mergers began to grab headlines.
The timing of Monday's announcement also highlights the appeal Democrats believe the issue has with voters. By having Treasury announce new steps now, the White House is practically daring Republicans to voice their opposition.
Obama elevated the issue in July, demanding "economic patriotism" from U.S. corporations that use legal means to avoid U.S. taxes through overseas mergers. "I don't care if it's legal," Obama declared at the time. "It's wrong."
Republicans have resisted targeted efforts to limit such deals, arguing that such a change should be incorporated into a more ambitious overhaul of the tax code. Democrats, in turn, have portrayed Republicans as defenders of corporate loopholes.