Sen. Chuck Schumer is preparing legislation to stop companies from leaving the U.S. for tax purposes by penalizing firms that have done so as far back as 1994.
The New York senator, the number three Democrat in the upper chamber, is likely to roll out the bill as likely as this week, an aide said, in an effort to forestall so-called corporate inversions. An inversion is a tax-saving maneuver in which a U.S. firm buys a company in a low-tax country in order to place its headquarters in that country. The number of inversions and pending deals has increased rapidly over the course of the past two years, raising concerns in the Obama administration and Congress.
Bloomberg News reported Sunday that Schumer was drafting legislation that would reduce the amount of deductible interest for inverted companies, and that the bill would apply to companies that moved their legal address outside the U.S. as long ago as 1994.
The move would be intended to prevent companies headquartered abroad from taking out large amounts of debt at their U.S.-based subsidiaries, thereby shifting taxable income out of the U.S. and into the low-tax jurisdiction. It’s commonly thought that such “earnings stripping” is a major impetus for many companies to seek inversions.
By targeting the policy to firms that left the U.S. in 1994, the bill could affect companies such as Helen of Troy, a cosmetics company that moved its headquarters to Bermuda that year in one of the earliest inversions.
Schumer’s bill would likely fail to gain traction in the Senate. Top Republican lawmakers have stated their preference for comprehensive corporate tax reform and opposition to punitive short-term measures.
Other Democrats, including Sen. Carl Levin of Michigan and his brother Rep. Sander Levin of Michigan, have pushed legislation to tighten the laws restricting companies from simply changing their mailing address to claim foreign residency.
Sen. Ron Wyden of Oregon, the chairman of the Senate Finance Committee, has said he is working with the committee, including the ranking Republican member Orrin Hatch of Utah, to find a legislation solution to the inversions problem.
