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House Democrats Introduce Legislation to Tighten Restrictions on Corporate Tax Inversions

May 20, 2014

Washington, D.C. – A group of nearly a dozen House Democrats today introduced legislation to tighten restrictions on corporate tax inversions, limiting the ability of American companies to avoid U.S. taxation by combining with a smaller foreign business and moving their tax domicile overseas. The House legislation and companion Senate legislation introduced today by U.S. Sen. Carl Levin (D-MI) largely mirror the inversion proposal included in the President’s FY 2015 budget.

Co-sponsors of the legislation include Ways and Means Committee Ranking Member Sandy Levin (D-MI), Rep. Jan Schakowsky (D-IL), Rep. Charles Rangel (D-NY), Rep. Jim McDermott (D-WA), Rep. Richard Neal (D-MA), Rep. Lloyd Doggett (D-TX), Rep. John Larson (D-CT), Rep. Danny Davis (D-CT), Budget Committee Ranking Member Chris Van Hollen (D-MD) and Rep. Rosa DeLauro (D-CT).

There have been more than 40 corporate inversions in the last decade, costing the U.S. tax base billions of dollars. The Treasury Department estimates that the President’s FY 2015 budget proposal on inversions would raise $17 billion in revenue over the next decade.

Under current law, a corporate inversion will not be respected for U.S. tax purposes if 80 percent or more of the new combined corporation (incorporated offshore) is owned by historic shareholders of the U.S. corporation. The bill would make it harder for U.S. companies to invert by reducing this threshold from 80 percent or more to more than half. This would effectively require U.S. companies to merge with foreign companies that are roughly equal or larger in size in order to move their location for tax purposes outside the United States and, thereby, escape U.S. tax.

The legislation would apply to inversions completed after May 8, 2014.

“Corporate inversions are a growing problem, costing the U.S. tax base billions of dollars and undermining vital domestic investments,” said Ranking Member Levin. “This egregious practice requires immediate action. This legislation would stop American companies from avoiding U.S. taxes simply by purchasing a smaller foreign company.”

“U.S. Corporations benefit from tax-payer funded research, our transportation infrastructure, our top-rate education system and the productive employees it produces, and our world-leading economy,” said Rep. Schakowsky. “Yet many of these corporations have used inversions to avoid their fair share of U.S. taxes – taxes that pay for the investments that have helped them profit and thrive. This legislation will help address that issue and ensure that the corporate giants supported by the U.S. economy meet their tax obligations.”