Bernie Sanders is trying to push the Treasury Department to unilaterally stop pharmaceutical giant Pfizer from moving its headquarters to Ireland.
In a letter sent to Treasury Secretary Jack Lew Friday, the Vermont senator and Democratic presidential candidate called on the Treasury to write new rules to prevent Pfizer from avoiding U.S. taxes if it undergoes its planned $160 billion deal with Dublin-based Allergan.
The deal, Sanders warned, is “nothing less than a tax scam.” Stopping it through administrative action, he added, “would not only be sound fiscal policy, it would also act as a strong deterrent to other companies that are contemplating similar tax scams.”
The Treasury and Congress have grown concerned with the impact of so-called corporate inversions, in which a U.S. company merges with a business in a low-tax jurisdiction and then places the headquarters of the newly combined company there. Sanders, the top Democrat on the Senate Budget Committee, cited an estimate from an outside group that the Pfizer inversion alone might deprive the Treasury of $35 billion in taxes.
Lew has twice announced new rules meant to undercut the tax benefits of inversions, which generally include the company avoiding the U.S. 35 percent corporate tax rate on its overseas earnings and sometimes include lowering the tax bill on U.S. earnings by shifting those earnings out of the country.
At issue, however, is whether the Treasury has unilateral ability to stop what are known as “hopscotch loans,” a maneuver that allows multinationals to access their unrepatriated earnings without paying U.S. taxes. In the procedure, the foreign subsidiary of a company that has undergone an inversion loans funds to the new parent company, bypassing or “hopping” over the old U.S.-based parent company.
In his letter, Sanders suggested that the Treasury does have that authority with its existing powers. He also argued that the Treasury has the authority to prevent “earnings stripping,” a process in which inverted companies might lower their U.S. tax bills by having the U.S. subsidiary issue interest-free debt to the parent company overseas, thereby shifting taxable income to the jurisdiction with lower taxes.
The Treasury has said that it is examining its options for new rules to limit earnings stripping, but has not made any announcement.
Sanders’ opponent in the Democratic primary, Hillary Clinton, also has elevated the issue of corporate inversions in her campaign, cutting an ad outside of the offices of a business seeking an inversion and casting its departure as an “outrage.”
