The US Senate Finance Committee’s top Republican, on July 22, said that he would consider supporting legislation to stop corporate inversions, independent of comprehensive tax reform, as long conditions were met.
Senator Orrin Hatch of Utah told a Senate Finance Committee hearing that he was “greatly concerned” about the recent wave of US corporate inversions, where a U.S. company acquires a foreign company to shift its tax domicile out of the U.S.
While reform of the international tax code is the best way to address inversions, “there may be steps that Congress can take to at least partially address this issue in the interim,” he said.
“Whatever approach we take, it should not be retroactive or punitive. And, it should be revenue neutral,” Hatch said. He also said any approach should support a move to a territorial tax system, should not enhance the current bias toward foreign acquisitions, and should not impede comprehensive tax reform.
Democrats and administration officials, on the other hand, seek to make anti-inversion legislation retroactive to May 2014.
“Congress should pass anti-inversion legislation immediately with an effective date of May 2014″ to stop companies from avoiding US tax, Robert Stack, Treasury’s deputy assistant secretary for international tax affairs, told the committee.
Chairman Ron Wyden, a Democrat from Oregon, called inversions a “sickness” that is “gnawing away at our country” and eroding the U.S. tax base. He said that special action on inversions must be taken immediately as the number of deals is increasing and it is unlikely that comprehensive tax reform will pass any time soon.
Senator Charles Schumer, Democrat of New York, called for legislation applicable to companies that have inverted that would disallow deductions on interest paid by the U.S. subsidiary to its foreign parent. Inverted companies typically avoid tax on U.S. profits by setting ups such intercompany loans; limiting the tax deduction would discourage future inversions while avoiding any issues of retroactivity, Schumer said.
Hatch also reiterated concerns that the OECD’s base erosion and profit shifting (BEPS) initiative is being used by foreign countries as means to raise taxes on American companies.
Pascal Saint-Amans, OECD Director, Center for Tax Policy and Administration, countered that BEPS is global issue that is not targeted at U.S. companies. He pointed out that US companies constitute less than one quarter of the fortune global 500 companies.
Stack said the US government is actively involved in BEPS process and is guarding against “bad outcomes,” such as vague international tax norms that would lead to more tax disputes because they could be manipulated by tax authorities, or new standards that would erode the U.S. tax base or increase double taxation.
See, also, Tax Inversions Must Be Stopped Now, by Edward D. Kleinbard, The Wall Street Journal
