The federal government will lose an estimated $33.6 billion in corporate tax revenue without legislation to stop U.S. businesses from shifting their headquarters overseas, according to Congress’ official tax scorekeeper.
The estimate from the Joint Committee on Taxation is an update from an earlier estimate released in May, which put the total impact of corporate inversions on federal coffers at $19.5 billion over 10 years. Inversions are maneuvers in which a U.S. corporation acquires a company based in a low-tax country and then places its headquarters in that jurisdiction to lower its U.S. tax bill.
The JCT said in a letter dated Tuesday that it had raised its estimate of the revenues that could be lost through inversions because its earlier analysis “did not properly reflect the appetite of some U.S. corporations for inversions.”
The pace of inversions quickened throughout 2013 and 2014. They became a subject of intense scrutiny in Washington following Burger King’s announcement in August that it would merge with Canadian bakery chain Tim Hortons and move its headquarters to Canada.
After Democrats failed to win over Republicans on legislation intended to prevent inversions, the Treasury issued tax-rule changes in September intended to undercut the tax benefits of the deals.
The Treasury’s announced administrative actions succeeded in discouraging some deals from going forward, such as Chicago pharmaceutical company AbbVie’s attempt to purchase the British drugmaker Shire and move its headquarters to the United Kingdom. That deal was called off in October.
Nevertheless, Treasury Secretary Jack Lew and Democrats have warned that administrative action alone will not be enough to stem inversions, which can yield large long-term tax benefits for companies in certain industries, such as pharmaceuticals.
“Corporate inversions remain a serious problem that must be immediately addressed through legislation. Action cannot wait for tax reform,” said Rep. Sander Levin of Michigan, the ranking Democratic on the House Ways and Means Committee whose office publicized the JCT analysis. “The Treasury Department’s proposed rules are an important step toward stemming the tide of inversions, but the new estimates make clear that immediate legislative action is necessary,” Levin said.
The $33.6 billion figure from the JCT reflects the savings to the Treasury that would follow the implementation of a Democratic bill that would be expected to stop further inversions. That bill would treat a company headquartered abroad as a U.S. company if it were the result of an inversion in which the owners of the original U.S.-based company were still the majority owners of the newly formed parent company. It would also treat the inverted company as a domestic one if it had “significant business” in the U.S. and was managed or controlled primarily within the U.S.
Critics of laws to stem inversions have said that the savings to the Treasury of cracking down on the deals are small relative to the overall tax picture. The corporate tax code is expected to bring in roughly $4.5 trillion in revenue over the next 10 years.
