May 20, 2014

Kaine Joins 13 U.S. Senators To Introduce Bill to Clamp Down On ‘Inversions’ Tax Loophole

Bill provides 2-year moratorium on tax avoidance through offshore loophole while Congress pursues broad reform

WASHINGTON – In an effort to tighten rules on corporate tax avoidance through “inversions,” U.S. Senator Tim Kaine joined a group of 13 Senators today to introduce The Stop Corporate Inversions Act of 2014, legislation to address the practice of reincorporating offshore to avoid paying U.S. taxes.

The bill is designed to prevent the loss of billions of dollars in revenue through corporate tax-driven inversions, a loss that would add either to the deficit or to the tax burden of American taxpayers. 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 while maintaining a broad business presence in the U.S. The two-year moratorium would put a pause on these transactions while the Senate considers comprehensive tax reform options.

“This is about leveling the playing field and rooting out flagrant tax abuse in our system that could lead to billions of dollars of lost revenue," said Sen. Tim Kaine, D-Va. “In order to fully restore budget certainty, we need to look at abuses in the tax code as much as spending. The fact that companies can change their tax liability to low-tax jurisdictions on paper while maintaining operations and ownership in the U.S. is unacceptable and I'm pleased to join my colleagues to introduce this important fix.”

“These transactions are about tax avoidance, plain and simple,” said Sen. Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations and the bill’s lead sponsor. “The Treasury is bleeding red ink, and we can’t wait for comprehensive tax reform to stop the bleeding. Our legislation would clamp down on this loophole to prevent corporations from shifting their tax burden onto their competitors and average Americans while Congress is considering comprehensive tax reform.”

Additional cosponsors are Sen. Sheldon Whitehouse (D-RI), Sen. Jay Rockefeller (D-WV), Sen. Dianne Feinstein (D-CA), Sen. Barbara Boxer (D-CA), Sen. Bill Nelson (D-FL), Sen. Brian Schatz (D-HI), Sen. Mazie Hirono (D-HI), Sen. Ben Cardin (D-MD), Sen. Tim Johnson (D-SD), Sen. Angus King (I-ME), Sen. Debbie Stabenow (D-MI) and Sen. Elizabeth Warren (D-MA).

The bill is broadly similar to a proposal in President Obama’s 2015 budget submission. Under current law, U.S. companies can “invert” and avoid paying U.S. income taxes if a merger transfers just 20 percent of its stock to shareholders of an offshore company. The bill introduced today would raise that threshold to 50 percent, so that if the majority of a company’s stock remains in the hands of the U.S. company’s shareholders, it is treated as a U.S. company for tax purposes. It also would bar companies from shifting tax residence offshore if their management and control and significant business operations remain in the United States.

The two-year moratorium is achieved through a two-year sunset provision designed to provide time for Congress to work on bipartisan comprehensive corporate tax reform.

Companion legislation is being introduced in the House of Representatives by Rep. Sander Levin (D-MI), the ranking member on the House Ways and Means Committee.