U.S. Senate Democrats propose exit tax for inverting companies

WASHINGTON Two Senate Democrats want to force U.S. companies to pay an exit tax on any profits held overseas if the companies decide to reincorporate abroad to cut their tax bills, the latest in a slew of proposals to stem such "inversion" deals.

Senators Sherrod Brown and Dick Durbin on Friday released details of a bill that would require foreign earnings that have not been repatriated, or brought into the United States, to be taxed as income at the point when a U.S. company inverts.

Democratic lawmakers want to take immediate steps to slow or stop a wave of inversions that threaten to undermine the U.S. corporate tax base. In these deals, a U.S. company typically buys a foreign rival, then locates the tax domicile of the combined entities abroad to escape higher U.S. taxes.

"Everyone knows that before you leave a restaurant you have to settle your tab," Brown, of Ohio, said in a statement. "Corporations shouldn't get to play by different rules."

He previously called for consumers to steer clear of Burger King Worldwide BKW.N after it said it would move its tax base to Canada as part of a deal to buy coffee-and-donut chain Tim Hortons THI.TO. Brown said hamburger customers should instead frequent Wendy's (WEN.O) or White Castle, both based in Ohio.

Businesses say the inversion deals help them pay the least taxes possible, which investors expect. They also say U.S. taxes are inordinately high compared with rates in many other countries, particularly for profits earned overseas.

Republicans want to address the problem through broad corporate tax reform that lowers rates. But many Democrats want to act sooner. Proposals range from making it more difficult to invert to blocking certain tactics foreign companies use to reduce U.S. taxes.

Foreign profits earned by U.S.-based companies are not taxed in the United States until they are repatriated, so many companies hold cash and invest overseas to avoid those taxes.

Lawmakers have bemoaned this trend, which they say "traps" cash abroad. Brown's plan gets at both issues by taxing those foreign earnings when a company inverts.

Citizens for Tax Justice, a lobby group that has floated a similar idea, said individuals pay an "exit" tax on unrealized capital gains if they renounce their U.S. citizenship.

The inversion plan is similar and would remove a "significant incentive" for companies to move abroad, the group argued in a paper earlier this month.

(Reporting by Emily Stephenson; Editing by Kevin Drawbaugh and Dan Grebler)