WASHINGTON, July 22 (Reuters) - Immediate government action is needed to plug a loophole that allows U.S. corporations to avoid federal taxes by shifting their tax domiciles overseas through deals known as inversions, the head of the U.S. Senate Finance Committee said on Tuesday.
Nine inversion deals have been agreed to this year by companies ranging from banana distributor Chiquita Brands International Inc to drugmaker AbbVie Inc and more are being considered. The transactions are setting a record pace since the first inversion was done 32 years ago.
Washington is increasingly concerned about the trend. “Let’s work together to immediately cool down the inversion fever ... The inversion loophole needs to be plugged now,” said Democratic Senator Ron Wyden, finance committee chairman, at a hearing.
Several Democrats have offered bills to curb the inversion deals, which can put foreign earnings out of the reach of the Internal Revenue Service and make other tax savings possible to boost a multinational company’s bottom line. But no new law is likely as long as Republicans contend that inversion rules need to be part of a broader overhaul of the tax code, policy analysts said.
Wyden said his panel asked the chief executives of several inverted companies to testify at the hearing on international tax law problems. “None accepted our invitations,” he said.
A senior official from the U.S. Treasury Department, speaking to the committee, reiterated the Obama administration’s call for urgent action by Congress to implement a White House proposal to make inversions more difficult to do.
“Congress should pass legislation immediately with an effective date of May 2014 to prevent companies from effectively renouncing their citizenship to get out of paying taxes,” said Robert Stack, deputy assistant secretary at the Treasury.
“We are aware of many more inversions in the works right now,” he added.
But the Republican-controlled U.S. House of Representatives will not act on inversions “unless there’s comprehensive tax reform, and that’s dead for this year,” said Greg Valliere, chief political strategist at Potomac Research Group.
Inversions are still rare, but they are becoming more common. Of the roughly 60 deals done since 1982, more than half have come in just the last six years, a Reuters review showed.
An inversion involves a U.S. corporation buying or setting up a smaller company abroad, then shifting its tax home base to that company’s country, which typically has lower tax rates than in the United States.
Such deals seldom mean a U.S. corporation physically leaves home. Usually an inversion means that a company will open a small office abroad, perhaps in England or Ireland, as a new address for tax purposes, leaving major operations intact.
President Barack Obama’s 2015 budget proposed making inversions harder to do by raising the foreign ownership required. Congressional Democrats have made similar proposals. (Editing by Tom Brown)