Treasury Keeps Up Rhetoric on Tax Inversions

Treasury Secretary Jack Lew says he is close to a decision on how to prevent firms from "effectively renouncing their citizenship."
September 9, 2014
Treasury Keeps Up Rhetoric on Tax Inversions

Treasury Secretary Jacob J. Lew is getting close to deciding what regulatory action he will take to crack down on corporate tax-dodging inversion deals.

U.S. Treasury Secretary Jack Lew

U.S. Treasury Secretary Jack Lew

A decision will be made in the “very near future,” Lew said in a speech Monday at a Washington think-tank, according to The New York Times.

The Obama administration has been considering regulatory changes in response to the partisan gridlock in Congress over corporate tax reform. The increase in inversion deals— which allow businesses to reincorporate abroad to avoid U.S. corporate taxes — has put pressure on the administration to act because of the potential of large losses to the U.S. Treasury.

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“The administration is clear-eyed about the possibility that Congress may not move as quickly as necessary to respond to the growing wave of inversions,” Lew said at the Urban Institute, which is affiliated with the nonpartisan Tax Policy Center.

He said the administration would prefer that Congress pass a law both to end tax-based inversions and, more broadly, to rewrite the tax code to make it simpler and less anti-competitive. “Only a change in the law can shut the door, and only tax reform can solve the problems in our tax code that lead to inversions,” the Times reported Lew as saying.

Under President Obama’s legislative proposal, a corporation could not claim foreign residence if it is managed in the U.S. and conducts “substantial business activities” here, and if shareholders of the foreign-based firm own less than 50 percent of the merged corporation. Current law provides for only a 20 percent ownership threshold.

Congress has not acted on either that proposal or the administration’s comprehensive plan to overhaul the corporate tax code.

“By effectively renouncing their citizenship but remaining here, these companies [that do inversions] are eroding America’s corporate tax base,” Lew said, according to the Times.

“That means,” he added, “all other taxpayers — including small businesses and hard-working Americans — will have to shoulder more of the responsibility of maintaining core public functions that everyone, particularly U.S. businesses, depends on.”

Source: The New York Times Lew Says Decision Near on Corporate Tax Actions

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