On Tuesday, May 20th the Democrats in the House and Senate introduced legislation to tighten the restrictions on corporate tax inversions, limiting the ability of U.S.-based companies to avoid U.S. taxes by combining with smaller foreign business and moving their tax domicile overseas.

More specifically, the proposed legislation would make it harder for U.S. companies to invert by reducing the 80% or more requirement (e.g., under the current law 80% or more of the new combined corporation incorporated offshore must be owned by historic shareholders of the U.S. corporation) to more than 50%. 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 proposed legislation would apply to inversions completed after May 8, 2014.

The bill would further and effectively impose a two-year moratorium on inversions, the practice of shifting a corporation's tax residence overseas through acquisition of an offshore company to avoid paying U.S. income taxes. The two-year moratorium would be achieved through a two-year sunset provision designed to provide time for Congress to work on bipartisan and comprehensive corporate tax reform.

As a caveat, this bill is merely proposed legislation on Capitol Hill at this time and only time will tell if this bill becomes law in the weeks and months to follow.