Democratic Lawmakers Introduced Bills to Curb the Practice
In the wake of Burger King’s announced purchase of Canadian doughnut maker Tim Horton’s to reduce its international tax burden, Democratic lawmakers from Rep. Mark Pocan (D-WI) to Sen. Charles Schumer (D-NY) have introduced bills to curb the practice, legislation to close provisions that allow US corporations to use so-called “tax inversions” to reduce their tax burden.
A recent report by Bloomberg shows multinational companies accumulated nearly $2 trillion in accounts outside the U.S., in 2013 – an increase of 11.8 percent as corporations shift more profits to offshore tax havens.
Pocan’s three bills:
- Corporate Fair Share Tax Act. This provision cracks down on corporate earnings stripping, a method of avoiding taxes in which U.S.-based groups are loaded up with debt owed to the affiliated foreign company; the U.S. entity then pays high levels of interest on this debt, which nets them significant tax deductions or wipes out taxable income in the U.S. Specifically, the provision limits the deductions a corporation may claim to a level at which the U.S. entity’s share of interest on debt is proportionate to the U.S. entity’s share of earnings. The Treasury Department estimates this would increase revenue by $48.6 billion over the next ten years.
- Putting America First Corporate Tax Act. Currently corporations can defer paying taxes on foreign profits until that money is repatriated back to the U.S., often via dividends to shareholders. One provision changes Section 956 of the tax code to close this loophole and require controlled foreign corporations to pay U.S. taxes on future active income beginning on December 31, 2014. The Congressional Budget Office estimates that ending this loophole would increase revenue over the next ten years by $114 billion.
- Corporate Transparency and Accountability Act. This provision restores a previous requirement of corporations to disclose both pre-tax profits and the total amount paid in state and federal taxes. The language also mandates this information be publicly available on the SEC website in a way that is searchable, sortable, and downloadable.
Sen. Shumer’s bill, still in draft form, could limit deductions for companies that moved their tax addresses out of the U.S. as long ago as 1994.
But the bills have three hurdles to overcome. The first is the limited Congressional schedule of work days until recess – 23 days, in which action must be taken on appropriations bills, support for Syrian operations, immigration, fixing the Veterans Administration, and lots of pre-election pork. There is neither time nor support for an inversion bill.
Republicans are also clamoring for a complete overhaul of business taxes, as Rep. Dave Camp and others lobbied for earlier this year.
At the end of the day, Congress can’t overlook the fact that lowering a company’s tax burden to maximize the value of retirement funds and other investors are activities on the part of corporate boards of directors that are required under the laws governing corporate boards.
Outlook for 2014: Slim to none.
Sources: Pocan Draft Bills on Corporate Taxation: HR 5442, the Corporate Transparency and Accountability Act; HR 5443, Putting America First Corporate Tax Act; and HR 5444k the Corporate Fair Share Tax Act;
AccountingToday at http://www.accountingtoday.com/news/government-news/congressman-introduces-legislation-to-stop-tax-inversions-71953-1.html