(Reuters) - Calling for a new sense of “economic patriotism,” U.S. Treasury Secretary Jacob Lew urged Congress on Wednesday to take steps quickly to discourage U.S. companies from moving their tax domiciles abroad to avoid federal taxes.
“Congress should enact legislation immediately,” Lew told a business conference in New York hosted by cable television channel CNBC. “We should have some economic patriotism here.”
Lew’s remarks came amid a wave of corporate deals known as inversions, in which a U.S. company shifts its tax home base to a lower-tax country by combining with a company based in that country. Popular destinations are Ireland and the Netherlands.
Congress is unlikely to take action on inversions until after November’s midterm elections, but political momentum for some legislation is building, policy analysts said.
Senate Majority Leader Harry Reid told reporters on Wednesday that inversion legislation was needed before lawmakers try to revamp the U.S. tax system. “It’s taken far too much time,” Reid said. “If we don’t do something about inversion, there will be nothing to do tax reform on.”
The tax-writing Senate Finance Committee will hold a hearing on Tuesday on international taxation, including inversions.
The deals are still rare, but a flurry of them in recent months has prompted concern in Washington. Medical technology group Medtronic Inc plans to buy Dublin-based rival Covidien Plc and shift its tax home base to Ireland.
Drugstore chain Walgreen Co is weighing a possible inversion. Drugmaker Pfizer Inc’s bid in April to buy UK rival AstraZeneca Plc was structured as an inversion. That deal fell through, but it drew attention to inversions.
“We have a corporate tax policy which is driving capital and companies overseas,” JPMorgan Chase & Co Chief Executive Jamie Dimon, one of the nation’s most influential bankers, said on a conference call with reporters on Tuesday.
“These people are building R&D plants overseas. They are sending engineers overseas,” he said.
While inversions sometimes result in U.S. job losses, they often involve setting up a tax domicile abroad that is little more than a small office, while keeping the bulk of a business’s executive and research operations in the United States.
In a letter to members of Congress on Tuesday, Lew said corporations that do inversions want to keep the advantages of being in the United States - such as government-backed intellectual property protection, research support, financial security and reliable infrastructure - without paying.
President Barack Obama’s 2015 budget, introduced in March, proposes making inversions more difficult by raising the minimum levels of foreign ownership required. Congressional Democrats have made similar proposals.
Lew wrote in his letter, obtained by Reuters, that legislation should be made retroactive to May 2014. The issue of retroactivity has been of keen concern to corporations that are exploring possible inversion deals, tax lawyers said.
Additional reporting by Kevin Drawbaugh and Emily Stephenson in Washington and David Henry in New York; Editing by Chizu Nomiyama and Jonathan Oatis