WASHINGTON (Reuters) - Immediate government action is needed to stop U.S. corporations from avoiding 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 this. “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 inversions, which let companies cut their taxes primarily by putting foreign earnings out of the reach of the Internal Revenue Service.
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. No new anti-inversion law is likely to be approved as long as Republicans insist that such a step be accompanied by an overhaul of the tax code, policy analysts said.
Utah Senator Orrin Hatch, the finance committee’s top Republican, said, ”The ultimate answer to this problem - and the only way to completely address the issue of inversions - is to reform our tax code.
“However, as I’ve also said publicly, there may be steps that Congress can take to at least partially address this issue in the interim ... Whatever approach we take, it should not be retroactive or punitive. And it should be revenue neutral.”
Hatch said he does not support recent bills introduced by Democrats.
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 usually mean opening a small office abroad for tax purposes, leaving major operations intact.
Editing by Tom Brown and David Gregorio