Treasury urges tax inversion action
All those “moving abroad” signs are making politicians itchy. Treasury Secretary Jacob Lew urged lawmakers on the House Ways and Means Committee in a letter Monday to help rein in the pursuit of tax inversion strategies which allow companies to declare a foreign location their home base in order to dodge corporate taxes without actually moving.
Or, as he describes it, “effectively renouncing their citizenship to get out of paying taxes,” while still expecting “to benefit from their business location in the United States, with our protection of intellectual property rights, our support of research and development, our investment climate, and our infrastructure.”
Lew writes that business tax reform is essential to curb the appeal and asks the lawmakers to pass legislation that would stop name-only relocations. He also wants the law to apply to deals that were in place as of May 2014.
Such a move would have a direct impact on Shire and AbbVie which are working out a deal which would give AbbVie the lower tax rate that would come with an Irish tax address. Bloomberg notes that AbbVie has said it would run the new business from Chicago, Illinois.
The proposal would also pinch Abbott and Mylan which have joined forces in a way that will remove some generics from Abbott's portfolio and offer Abbott a side of tax relief, and Salix, which teamed up with Cosmo Technologies earlier this month. Cosmo is headquartered in Italy but benefits from an Ireland-enhanced tax status.
The Wall Street Journal notes that lawmakers are divided over how to handle the issue, with both Democrats and Republicans worrying that acting too quickly could just make matters worse.
Investment group ISI's senior political strategist Terry Haines wrote in an analysis that it is unlikely anything will be done this year, despite the number of times the words "tax inversion" pop up in headlines or in news stories, because “the Washington debate is being driven much more by midterm election politics than policy differences.” Instead, he expects Congress will spend next year working on “comprehensive tax reform effort that improves incentives for US companies to stay in the US.”