US wants law to clamp down on firms moving overseas
Ireland among countries that benefit from US corporate ‘inversions’ to cut tax bills
Jacob “Jack” Lew, US treasury secretary. Mr Lew has urged members of Congress to pass legislation immediately to stop US companies from shifting their legal addresses overseas
The Obama administration has added its voice to the growing chorus of criticism of US companies shifting their legal addresses overseas, in many cases to Ireland, urging Congress to curb the tax-cutting practice.
The Wall Street Journal reported late on Tuesday that US treasury secretary Jack Lew urged members of Congress in a letter to pass legislation immediately “to shut down this abuse of our tax system.”
The US administration joined critics of a practice known as “inversions” where a US company acquires or merges with a foreign company allowing the firm to relocate its legal address for tax purposes to a low corporate-tax country such as Ireland where the rate is 12.5 per cent avoiding the higher US corporation tax rate of 35 per cent.
The newspaper said that Mr Lew’s letter to congressional tax-legislating committees criticised US corporations that move overseas to avoid the US tax rate while continuing to operate on US soil and benefitting from US legal protections, infrastructure and basic research.
“What we need as a nation is a new sense of economic patriotism, where we all rise or fall together,” wrote Mr Obama’s treasury secretary. “We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes.”
The Obama administration wants to back-date any curbs against corporate inversions overseas to May 2014.
Mr Lew’s letter lends weight to efforts on Capitol Hill, led by Democratic congressman Sander Levin and his brother, Senator Carl Levin, to limit relocations for tax purposes to specific circumstances.
While many Republicans are in agreement that changes are required, they are resisting quick-fix changes, fearing that they might put US companies at a competitive disadvantage.
Instead they want legislation introduced as part of a broader overhaul of US tax laws to improve American tax competitiveness against a growing wave of companies seeking to lower their tax costs by reincorporating abroad.
Given the deep divisions between Democrats and Republicans, comprehensive reform of the complex US tax code remains a challenge.
The growing political unease over American corporations reincorporating overseas comes against a spate of recent inversions.
Pushing for his new legislation, Sander Levin released a report by the policy research arm of Congress last week showing that 76 US corporations had moved their tax domiciles to foreign addresses since 1983, including 47 in the past decade, mostly since 2008.
In the biggest inversion deal agreed this year, Irish-based healthcare group Covidien agreed to a takeover by Minnesota-based medical device company Medtronic in a $42.9 billion deal that will see the US shift its prime legal address to Ireland to reduce the company’s tax bill.
This week it was reported that US drug manufacturer AbbVie is close to buying Dublin-based pharmaceutical company Shire for more than $53.6 million (€39.1 million) in what would be one of the largest inversion deals, relocating the Chicago firm’s tax domicile to the UK.
Ireland’s favourable tax regime came under scrutiny last year when a Senate panel, chaired by Senator Levin, technology giant Apple’s use of Irish companies to reduce its US tax bill by tens of billions of dollars.
At Tuesday’s Senate confirmation hearing of the US ambassador designate to Ireland Kevin O’Malley, Republican senator Ron Johnson of Wisconsin questioned him on whether it was appropriate for Ireland to compete against other countries with a lower corporation tax rate.
Mr Johnson said that “in the political realm here in this country it seems like there is a resentment” about American companies taking advantage of the 12.5 per cent rate in Ireland.
Mr O’Malley said that there were other factors drawing American companies to Ireland such as the well-educated Irish workforce, its attraction as an English-speaking country and being in the eurozone.
The Missouri lawyer told the Senate Foreign Relations Committee that the United States and the European Union were having discussions with Ireland about the tax rate offered to US multinationals and, if confirmed as ambassador, he would participate in those discussions too.