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Recent Inversion Wave Brings on Slew of Outrage - What's Next?

By Jaimie Woo
Tax & Budget Associate

Ten years ago, Republicans and Democrats agreed that corporate tax dodging was a problem, and came together to fix it. But large U.S. corporations got trickier — they sought out new ways to get around paying their taxes on U.S. profits, hiring thousands of tax accountants to take advantage of loopholes in our tax code. The recent fix? Corporate inversions.

Essentially, corporate inversion allows companies to make it look like their U.S. profits are generated abroad, when in fact they are not. By buying out a foreign company and using it as a tax haven, companies that “invert” don’t move abroad in any real sense, and continue to benefit from America’s infrastructure, education system, security and large consumer market. Average taxpayers, small businesses and larger domestic companies end up footing their tax bill. These offshore loopholes let companies avoid as much as $90 billion worth of taxes each year, according to a U.S. PIRG report. That doesn’t seem right.

Today, Sens. Sherrod Brown and Dick Durbin introduced a bill that would dig at an aspect of corporate inversion. It requires companies to “pay what they owe” on the offshore cash that they are hiding the moment it inverts. A couple of weeks ago, Sens. Chuck Schumer and Dick Durbin introduced another bill getting at inversion incentives. The legislation comes on the heels of several American companies – including Burger King and Walgreens — considering moving the address of their headquarters to a foreign subsidiary in order to dramatically shrink their tax bill, using a loophole in the tax code known as “earnings stripping.” Companies use this clever accounting trick to essentially load the American part of the company with debt owed to the foreign part of the company, making interest payments tax-deductible and thereby reducing the appearance of American profits.

These bills aren’t the only proposals on the table. Sen. Carl Levin’s Stop Tax Haven Abuse Act, as well as the Stop Corporate Inversions Act and No Federal Contracts for Corporate Deserters Act, are other pieces of legislation on the table to tackle tax avoidance maneuvers. We’ve seen this time and time again — bills get introduced, potential cosponsors are prodded, and then nothing happens. So the question remains: What’s next?

 It’s time for things to be different.

Corporations are craftier at finding loopholes in our tax code, but things are changing and there have been some victories of late: Walgreen Co. took into account the deep backlash from its customers, and didn’t go through with their inversion deal. Rep. Rosa DeLauro was able to successfully attach an amendment to several appropriations bills that would prohibit any company that inverted in Bermuda or the Cayman Islands from engaging in federal contracts. Both Republicans and Democrats approved of this measure, acting upon their collaboration from 10 years ago, and perhaps paving the way for more bipartisan efforts.

With the recent wave of corporate inversions, now is the time to strike while the iron is hot, and finally act on corporate tax avoidance. While some Members of Congress have shown tremendous support in the effort to curb inversions, we can’t forget the bigger picture: Inversions are just one of many loopholes that corporations use to avoid paying their taxes. These bills are all solutions to many pieces to the bigger problem, and must be considered together. Sens. Ron Wyden and Orrin Hatch, the chairman and ranking member of the Senate Finance Committee, respectively, should act on the numerous bills, as a collective, and hold corporations accountable to the taxes they should owe. 

Companies have gotten smarter at tax dodging. Let’s take action, and get ahead of the game.

 

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U.S. PIRG, the Federation of State Public Interest Research Groups, is a consumer group that stands up to powerful interests whenever they threaten our health and safety, our financial security, or our right to fully participate in our democratic society. www.uspirg.org

 

 

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