* By invoking 1969 law, Obama could bypass Congress -former
* Policy analyst says president unlikely to risk "overreach"
* Treasury Secretary Lew renews call for urgent action by
(Adds analyst comment, background)
By Kevin Drawbaugh
WASHINGTON, July 28 President Barack Obama could
act without congressional approval to limit a key incentive for
U.S. corporations to move their tax domiciles abroad in
so-called "inversion" deals, a former senior U.S. Treasury
Department official said on Monday.
By invoking a 1969 tax law, Obama could bypass congressional
gridlock and restrict foreign tax-domiciled U.S companies from
using inter-company loans and interest deductions to cut their
U.S. tax bills, said Stephen Shay, former deputy assistant
Treasury secretary for international tax affairs in the Obama
In an article published on Monday in Tax Notes, a tax
professionals' journal, Shay said the federal government needs
to move quickly to respond to a surge in inversion deals.
"People should not dawdle," said Shay, now a professor at
Harvard Law School, in an interview on Friday.
If the administration takes the steps he discusses, Shay
said, some of the many inversion deals said to be in the works
might be halted. The regulatory power conferred by the tax code
section he has in mind, known as Section 385, would be a "slam
dunk" for the Treasury Department, he said.
Height Analytics analyst Henrietta Treyz said on Monday in a
note to the investment research firm's clients that Obama likely
will not try to use Section 385 as Shay recommends, partly for
fear of being accused of "executive overreach."
Treasury Secretary Jacob Lew published an opinion column in
The Washington Post on Monday that urged Congress to act soon to
stem inversions. "We must confront this problem now," he wrote.
A sharp increase in inversion deals is causing alarm in
Washington, with Obama last week urging lawmakers to act soon on
anti-inversion proposals from him and other Democrats. But
Republican opposition has blocked any action in Congress.
Meantime, investment bankers and tax lawyers are promoting
inversions, with U.S. drugstore chain Walgreen Co one of
several companies evaluating such a transaction.
Medical technology group Medtronic Inc, of
Minnesota, and drug maker AbbVie Inc, of Illinois, are
in the midst of deals to invert to Ireland.
The biggest appeal of inversions for U.S. multinationals is
putting foreign profits out of the U.S. Internal Revenue
Service's reach. Another is making it easier to do so-called
"earnings stripping." This involves making loans from a foreign
parent to a U.S. unit, which can deduct the interest payments
from its U.S. taxable income. Plus, the foreign parent can book
interest income at its home country's lower tax rate.
Section 385 empowers the Treasury secretary to set standards
for when financial instruments are debt, eligible for interest
deductibility, or when they are ineligible equity.
If a company has loaded debt into a U.S. unit above a
certain level, the government could use Section 385 to declare
the excess as equity and ineligible for deductions, Shay said.
(Editing by Eric Walsh and Andrew Hay)