Levin Reintroduces Legislation to Curb Corporate Tax Inversions

Jul 26, 2017 Issues: Economy

WASHINGTON, D.C. – Rep. Sander Levin (D-MI) today reintroduced legislation to tighten restrictions on corporate tax inversions, limiting the ability of American companies to evade U.S. taxes by combining with a smaller foreign business and moving their tax address overseas.

“Inversions do long-term harm to our economy by eroding our tax base and hurting our ability to invest in America. This loophole illustrates perfectly why so many Americans believe that big corporations play by a different set of rules than everyone else. Middle class Americans should not be left to fill the hole in our tax base left by companies that invert,” said Rep. Levin.

A version of the legislation introduced in 2015 was estimated to save the U.S. nearly $34 billion, according to the Joint Committee on Taxation. Co-sponsors of the bill include Reps. Rosa DeLauro (D-CT), Jamie Raskin (D-MD), Adam Schiff (D-CA), and  Louise Slaughter (D-NY). Senator Dick Durbin (D-IL) introduced companion legislation in the U.S. Senate.

The Stop Corporate Inversions Act:

  • The legislation closes a loophole used by companies to unfairly lower U.S. taxes. The legislation treats a combined foreign corporation as a domestic corporation if the historic shareholders of the U.S. corporation own more than 50 percent of the new combined entity.
  • Regardless of the percentage ownership in the new combined corporation, if the affiliated group that includes the combined foreign corporation is managed and controlled in the United States and engages in significant domestic business activities in the United States, the U.S. corporation cannot invert under the legislation, and the combined entity would be treated as a domestic corporation.
  • As under current law, the legislation would maintain the substantial business exception under Section 7874 if the combined foreign corporation has substantial business activities in the foreign country where the combined entity is incorporated.

Background:

Congress enacted Section 7874 of the Internal Revenue Code in 2004 as a way to discourage U.S. companies from acquiring smaller foreign companies and moving their tax home to a foreign jurisdiction to dodge U.S. taxes. Since the provision was enacted in 2004, there have been more than 50 corporate inversions, according to Bloomberg.

In more recent years, the Obama Administration took additional steps to limit corporate inversions.  However, in April, President Trump issued an executive order requiring the review of several Department of Treasury Regulations issued by the Obama Administration, including those related to limiting inversions.

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