July 29, 2014 / 6:42 PM / 5 years ago

Democrats urge no U.S. contracts for corporate tax 'deserters'

WASHINGTON (Reuters) - Corporations that move their tax domiciles abroad would be denied federal contracts under legislation offered on Tuesday by Democrats in the U.S. Congress, targeting tax-driven deals known as inversions.

With November’s congressional elections approaching, Democrats are blasting away at inversions. Few U.S. companies have done such deals, but as they become more common, they are attracting more negative publicity.

“Corporations that renounce their citizenship not only invert their business operations but pervert our laws,” said Democratic Representative Lloyd Doggett of Texas.

“Those dodging their fair share of taxes should not be rewarded with taxpayer-funded government contracts,” he said in a statement on the bill made with three other senior Democrats.

Dubbed the “No Federal Contracts for Corporate Deserters Act,” it was unlikely to be approved soon. Congress will adjourn for the summer within days and Republicans have been saying they want inversions dealt with as part of a broad tax code overhaul.

An inversion is a deal in which a U.S. corporation buys or sets up a foreign company, then moves its tax domicile into that foreign company and its home country, while leaving core business operations in the United States. Doing such a deal ends U.S. taxation of the company’s foreign profits and makes it easier for the company to take other tax-cutting steps.

Inversion deals are legal, and company executives who arrange them say they are only trying to minimize the amount of taxes the company pays, as investors expect them to do.

The Democrats’ legislation would bar federal government contracts from going to businesses that incorporate overseas, that are majority-owned by the shareholders of the original U.S. corporation and that lack substantial business opportunities in the foreign country in which they are reincorporating.

Over the past 32 years, 52 U.S. corporations have completed inversions, a nickname that refers to the idea of turning the company upside down so a small, offshore unit becomes the head and larger, U.S. operations become the body.

Of those 52 deals, 19 have come since 2009, while 10 more are being finalized and many others are said to be in the works. For instance, Illinois-based drugstore chain Walgreen Co is considering whether to invert to Switzerland.

Medical technology group Medtronic Inc of Minnesota, and drug maker AbbVie Inc, also of Illinois, are in the midst of deals to invert to Ireland.

“Americans are rightly outraged at the wave of corporations seeking to abandon the U.S. to avoid their taxes,” said Michigan Democratic Senator Carl Levin in the statement “We should stop these companies from receiving federal funding.”

President Barack Obama, citing concerns resembling those of other Democrats and the threat posed by inversions to the U.S. corporate tax base, last week appealed to Congress to approve anti-inversion legislation. No action has resulted.

Editing by Cynthia Osterman

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