Offshore tax deals in the cross hairs

A group of Democratic senators unveiled a bill Tuesday that would limit a corporation's ability to shift its address offshore for tax purposes.

Sen. Carl Levin (D-Mich.), a longtime crusader against tax evasion and avoidance, said the bill would put a two-year moratorium on the practice, known as "inversion."

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“It will be very, very difficult if this bill is passed for companies to invert,” Levin told reporters at a news conference.

The measure, co-sponsored by 13 other Democrats and modeled after a proposal from President Obama, would drastically raise the amount of foreign ownership a merged company needs to be treated as foreign for tax purposes.

Currently, a company can avoid U.S. income taxes if a fifth of the stockholders in the merged company were not a part of the U.S. business. Obama and Levin want to bump that figure up to 50 percent.

And even if companies meet that ownership standard, the bill would still treat them as American for tax purposes if the corporation’s management stays in the U.S. or if at least a quarter of its employees, sales or assets remain domestic.

Lawmakers began eyeing those sorts of mergers again after the drug giant Pfizer sought to take over the British pharmaceutical company AstraZeneca.

Rep. Sandy Levin (Mich.), the top Democrat on the House Ways and Means Committee, and Sen. Levin’s brother, is introducing similar legislation in the House. Rep. Levin's bill skips the two-year moratorium and takes a more long-term approach to inversions, with the congressman saying the idea should "stand on its own two feet."

The measures would be retroactive to this month, meaning that it would have applied to the Pfizer and AstraZeneca merger, though AstraZeneca recently rejected Pfizer’s final offer.

Levin said that he went with the moratorium approach instead of a permanent ban to try to lure lawmakers — such as Sen. Orrin Hatch (Utah), the top Republican on the Senate Finance Committee — into dealing with inversions through more comprehensive tax reform.

“If they can achieve that in two years, fine,” Levin said. “The question is what do we do in the meantime.”

Congressional aides and lobbyists believe tax reform could be years away. But the Senate has also had trouble pushing through even broadly bipartisan bills on energy efficiency and tax breaks in recent weeks, as Democrats and Republicans fought over floor and amendment procedures.

Hatch and Ways and Means Committee Chairman Dave Camp (R-Mich.) have essentially said that targeted inversion legislation would be ineffective as long as the U.S. has the highest corporate tax rate in the industrialized world, 35 percent, and continues to tax offshore corporate income.

Speaker John Boehner (R-Ohio) echoed those concerns on Tuesday, telling reporters that inversions were “one of the reasons why we have to have tax reform.”

“U.S. companies have $2.2–2.3 trillion worth of corporate profits sitting overseas. Because of our broken tax code, we make it virtually impossible for them to bring that back here, and they’ve got a responsibility to their shareholders,” Boehner said.

“So we bear some of the responsibility in forcing companies to actually take steps like this, because we make it so expensive for them to bring those earnings back here."

The Finance Committee chairman, Sen. Ron Wyden (D-Ore.), has said that he believes tax reform is the best vehicle for addressing inversion and did not sign on to the new measure, even though he has said that he backs the basic plan outlined by the Levins.

Wyden said that he had already discussed hearings on tax reform that would likely touch on inversions.

“This question of invrsion and a lot fo the good work that Sen. Levin has been doing and talked about is essential to bring up in the context of international tax reform,” Wyden said.

But even as they tried to entice Republicans to their side, Democratic senators also said they regretted that tackling the issue was no longer bipartisan.

Sen. Chuck Grassley (R-Iowa), then-Sen. Max Baucus (D-Mont.) and then-Rep. Bill Thomas (R-Calif.) all showed an interest the last time Congress eyed inversions, almost a dozen years ago.

“I’m only sorry that we’re not a bipartisan group standing here today,” said Sen. Sheldon Whitehouse (D-R.I.), one of the bill’s co-sponsors. “But I guess now the Republican passion against taxes has come to the point where they are now willing to allow for and accommodate tax avoidance and tax cheating.”

Sen. Mazie Hirono (D-Hawaii) also pushed back on the idea that legislation should wait for tax reform, echoing Whitehouse’s comments that the tax code is “fundamentally corrupt.” Hirono noted that many corporations already pay far less than the statutory 35 percent corporate rate.

“Waiting for comprehensive tax reform is like waiting for Godot,” said Hirono, another co-sponsor.

Several Democrats who sit on the Finance Committee — Sens. Ben Cardin (Md.), Bill Nelson (Fla.) Jay Rockefeller (W.Va.) and Debbie Stabenow (Mich.) — have also signed on to the legislation.

Some lobbyists have suggested that, because of the Washington gridlock, corporations would and should brush aside Levin’s bill and Wyden’s threat to deal with inversions.

But Levin said Tuesday that companies would do that at their own peril, given that Wyden wants to make any legislation effective to this month.

“If we didn’t do that, I think there would be a rush to inversion,” Levin said.

This post was updated at 6:59 p.m.