Congress Moves to Restrict Corporate Tax Inversions

Written by Peter J. Scalise | Posted in Corporate • Treasury Regulations

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 a smaller foreign business and moving their tax domicile overseas. As a background, there have been dozens of corporate inversions in the last decade alone, costing the U.S. tax base billions of dollars, according to the bill’s proponents. The Treasury Department estimates that the President’s FY 2015 budget proposal set forth this past March on inversions would raise $17 billion in revenue over the next decade.

Under current law, a corporate inversion is not recognized for U.S. tax purposes if 80% or more of the new combined corporation incorporated offshore is owned by historic shareholders of the U.S. corporation. The proposed legislation would make it harder for U.S. companies to invert by reducing this threshold from 80% or more 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 legislation would apply to inversions completed after May 8, 2014.

Co-sponsors of the House legislation, known as the “Stop Corporate Inversions Act of 2014” (H.R. 4679), include Ways and Means Committee ranking member Sander Levin, D-Mich.; Rep. Charles Rangel, D-N.Y.; Jim McDermott, D-Wash.; Richard Neal, D-Mass.; Lloyd Doggett, D-Texas; John Larson, D-Conn.; Danny K. Davis, D-Ill.,; Budget Committee ranking member Chris Van Hollen, D-Md.; Rosa DeLauro, D-Conn.; and Jan Schakowsky, D-Ill..
On the Senate side, 14 Democrats are co-sponsors, including Carl Levin, D-Mich.; Sheldon Whitehouse, D-R.I.; Dianne Feinstein, D-Calif.; Tim Kaine, D-Va.; Brian Schatz, D-Hawaii; Mazie Hirono, D-Hawaii; Ben Cardin, D-Md.; Jay Rockefeller, D-W.Va.; Barbara Boxer, D-Calif.; Bill Nelson, D-Fla.; Tim Johnson, D-S.D; Angus King, I-Maine; Debbie Stabenow, D-Mich.; and Elizabeth Warren, D-Mass.

The bill would 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 comprehensive corporate tax reform.

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Peter J. Scalise

Peter J. Scalise serves as the Federal Tax Credits & Incentives Practice Leader for Prager Metis CPAs, LLC a member of The Prager Metis International Group. Peter is a highly distinguished BIG 4 Alumni Tax Practice Leader and has approximately twenty years of progressive public accounting experience developing, managing and leading multi-million dollar tax advisory practices on both a regional and national level.

Peter is a highly acclaimed thought leader in the fields of accounting and taxation with deep subject matter expertise in connection to designing, implementing and defending sustainable methodologies for specialty tax incentives including, but not limited to, research tax incentives; orphan drug credits; therapeutic discovery credits; accounting methods and periods; energy tax incentives in connection to green building envelope efficiency and benchmarking, solar energy, bio energies, fuel cells, wind turbines, micro turbines, and geothermal systems; and comprehensive fixed asset analysis incorporating principles of construction tax planning, cost segregation analysis and the final treasury regulations governing tangible property.

Peter is a renowned keynote speaker and an extensively published author on specialty tax incentives, tax controversy matters, and legislative updates from Capitol Hill for NAREIT, AGRION, USGBC, AICPA, ASTP, NATP, ABA, AIA, and TEI. Peter serves as a member of the Tax Faculty for CPAacademy, iShade and TaxConnections University (“TCU”). Peter serves on both the Board of Directors and Board of Editors for The American Society of Tax Professionals (“ASTP”) and is the Founding President and Chairman of The Northeastern Region Tax Roundtable.