The top Republican tax writers in the House and Senate are unhappy with the Treasury Department’s latest actions aimed at deterring companies from moving their legal residences overseas to lower their taxes.
“Instead of unveiling commonsense policies to help American employers compete globally and create new jobs for our workers, the Obama Administration just announced punitive regulations that will make it even harder for American companies to compete and will further discourage businesses from locating and investing in the United States,” House Ways and Means Committee Chairman Kevin Brady (R-Texas) said in a statement late Monday.
Treasury on Monday announced new actions designed to curb “corporate inversions” — transactions in which U.S. companies merge with foreign companies and reincorporate the combined company overseas, for the purpose of lower taxes.
The new actions included proposed regulations that address one of the main tax benefits for inverted companies, called “earnings stripping.” They also involved temporary regulations that target serial inverters. Additionally, Treasury released an updated framework for business tax reform.
Brady said the Obama administration’s minor updates to its business tax reform framework “still aren’t what is needed to fix our broken tax code.”
Senate Finance Committee Chairman Orrin Hatch (R-Utah) said the earnings-stripping proposal may limit incentives to invert but won’t stop companies from restructuring for tax purposes.
“The administration continues to tinker along the regulatory edges with unilateral proposals to address the symptoms of inversions, but not the disease,” he said.
A better approach would be for the Obama administration to work with Congress in good faith on tax reform, Hatch added.
“A comprehensive tax overhaul that reduces the rate, transitions to a territorial tax system with base erosion protections, and addresses earnings stripping will equip American businesses with the certainty they need to invest in a future here at home,” he said.
Meanwhile, the top Democrats on the tax-writing committees were pleased that Treasury took further action on inversions and called for Congressional action to stop inversions altogether.
Senate Finance Committee Ranking Member Ron Wyden (D-Ore.) said Treasury’s actions “are another step in the right direction,” adding that he is working on a proposal to crack down on inversions.
House Ways and Means Committee Ranking Member Sandy Levin (D-Mich.) has previously introduced legislation aimed at stopping inversions and limiting earnings stripping.
While the administration showed with the guidance that it is committed to stopping inversions, “it’s past time for Republicans in Congress to show the same commitment,” Levin said.
A planned inversion receiving a great deal of attention by Congress and presidential candidates alike is the announced merger of U.S. pharmaceutical giant Pfizer and Irish-based Allergan. The $160 billion deal would be the largest inversion to date.
Reuters reported that the proposed merger could be a casualty of Treasury’s actions. In after-market trading Monday, Allergan shares fell 22 percent and Pfizer shares increased by 3 percent.
Pfizer and Allergan said in a statement that they were reviewing Treasury’s actions and won’t speculate on how they might impact the deal until the review is finished, according to Reuters.