Senate Democrats are trying to give corporations another reason not to move their headquarters out of the U.S.
Sherrod Brown of Ohio and Dick Durbin of Illinois introduced a bill Friday that would make companies pay taxes on their foreign income held abroad before completing tax inversions.
“When individuals decide to renounce their U.S. citizenship, they must pay their tax bill before they leave. Corporations should do the same,” Durbin said.
Tax inversions, in which companies buy a business in a low-tax foreign country and then move their headquarters there to reduce their tax bills, have become an important issue in Washington as corporations like Burger King and Medtronic have sought to move their official addresses out of the U.S.
Experts think that one major impetus for inversions is that they allow U.S. companies to access their foreign earnings without paying taxes on them. The U.S. worldwide tax system, unusual for advanced economies, taxes companies on their foreign income, but only when they bring it back into the U.S. As a result, U.S. companies have more than $2 trillion in assets held overseas, according to the research firm Audit Analytics.
The Brown-Durbin bill, the Pay What You Owe Before You Go Act of 2014, would require companies to pay U.S. taxes on those funds before moving their headquarters out of the U.S.
Democrats have introduced legislation to address other economic benefits of inversions to companies. With Chuck Schumer of New York, Durbin proposed a bill earlier in September that would reduce inverted companies’ ability to use accounting maneuvers to shift income out of the U.S. and into the lower-tax country where its new headquarters is located.
But with Congress out until after the November elections, it is not likely that the legislation is likely to move anytime soon. Ron Wyden, the Oregon Democrat who heads the Senate’s tax-writing committee, has said that he is pursuing legislation that could get support from Republicans, who generally are opposed to measures that would penalize companies. House Republicans favor comprehensive tax reform to lower the U.S. corporate tax rate, which at 35 percent is the highest among industrialized nations.
In the meantime, Treasury Secretary Jack Lew said this week that his department would act “very, very soon” to try to undercut the benefits of inversions through changing tax rules. But he has cautioned that administrative action is not a substitute for legislation.
