LOS ANGELES (Reuters) - U.S. President Barack Obama on Thursday hammered U.S. companies that avoid federal taxes by shifting their tax domiciles overseas in deals known as "inversions" and called on Congress to pass a bill to end the practice.
During remarks to a rowdy crowd at the Los Angeles Technical College, Obama promoted what he called "economic patriotism" and made clear he believed the companies that were engaging in such practices were not being patriotic. The president is in California on a three-day fund-raising swing for Democrats.
So-called inversion deals occur when a U.S. company acquires or sets up a foreign company, then moves its U.S. tax domicile to the foreign company and its lower-tax home country.
Nine inversion deals have been reached this year by companies ranging from banana distributor Chiquita Brands International Inc to drugmaker AbbVie Inc, and more are under consideration. The transactions are setting a record pace since the first inversion was carried out 32 years ago.
"Even as corporate profits are higher than ever, there’s a small but growing group of big corporations that are fleeing the country to get out of paying taxes,” Obama said.
"They’re technically renouncing their U.S. citizenship, they’re declaring their base someplace else even though most of their operations are here. You know some people are calling these companies 'corporate deserters.'”
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.
Obama threw his weight behind the Democratic bills, calling for a rule change that would deem any company with half of its business in the United States to be U.S.-domiciled.
The proposed changes, already put forward in the president's annual budget, would be retroactive to May of this year and implemented independently of moves to achieve broader tax reform.
"We have seen increased activity from companies in the inversion space and as a result the president's view ... is that we should be acting as quickly as possible," a White House official told reporters on a conference call.
"That will buy us more time and space to ... reform our tax code as a whole."
Republicans prefer a change to inversions to be part of an effort to reform the U.S. tax code.
“Under President Obama, the United States has the highest corporate tax rate in the developed world. It doesn’t have to be that way: Comprehensive tax reform would reduce deductions and lower tax rates for everyone," said Michael Steel, spokesman for the Republican speaker of the House of Representatives, John Boehner.
The White House supports broad tax reform but argues that action on inversions is needed now.
Additional reporting by Kevin Drawbaugh in Washington; Editing by Jonathan Oatis