Sanders urges Treasury to block Pfizer tax deal

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Sen. Bernie SandersBernie SandersVulnerable NH Republican ties reelection bid to Trump Overnight Finance: Congress poised to avoid shutdown | Yellen defends Fed from Trump | Why Obama needs PhRMA on trade Trump mocks Clinton for stumbling while sick with pneumonia MORE, who is seeking the Democratic presidential nomination, is urging the Treasury Department to take action to prevent pharmaceutical giant Pfizer from reincorporating overseas to lower its taxes.

Pfizer announced in November that it would merge with Irish-based Allergan, with the new company keeping Allergan’s Irish tax residence. This type of transaction is known as a “corporate inversion.”

“Blocking this inversion would not only be sound fiscal policy, it would also act as a strong deterrent to other companies that are contemplating similar tax scams,” Sanders (I-Vt.) said Friday in a letter sent to Treasury Secretary Jack LewJack LewOvernight Finance: Congress poised to avoid shutdown | Yellen defends Fed from Trump | Why Obama needs PhRMA on trade Businesses urge Treasury to withdraw proposed estate tax rules Overnight Finance: Senate rejects funding bill as shutdown looms | Labor Dept. to probe Wells Fargo | Fed to ease stress test rules for small banks MORE. The letter was sent from Sanders’s Senate office.

Sanders said Congress should pass legislation that would end inversions, but until that happens, the Treasury has the ability to stop some tax-avoidance strategies that inverted companies and other corporations with foreign parents can use.

“I would urge the administration to take this action,” Sanders said. “Large multi-national corporations should not be able to avoid paying U.S. taxes when children in America go hungry. We must demand that these profitable corporations pay their fair share in taxes.”

Some tax-law scholars have recently argued that Treasury can stop two tax-avoidance strategies used by companies that have foreign parents: “hopscotch loans” and “earnings stripping.”

Hopscotch loans occur when an inverted company moves untaxed overseas profits to U.S. shareholders through transactions that appear to be loans to the foreign parent. Treasury has already blocked hopscotch loans for inverted companies in which at least 60 percent of the merged company is owned by shareholders of the American company, but Pfizer shareholders would only own 56 percent of the combined company after its merger, according to the letter.

Earnings stripping is when U.S. subsidiaries deduct interest payments made to their foreign parents.

A recent report from Americans for Tax Fairness found that if Pfizer’s inversion goes through, the company could avoid paying as much as $35 billion in taxes through hopscotch loans.

“I find it ironic that some of my Republican colleagues, in their internal budget negotiations, claim that $30 billion in deficit-reduction is required for the coming fiscal year,” Sanders said. “Preventing the inversion planned by just one company, Pfizer, could produce more deficit-reduction than the cuts they are demanding.”

Sanders’s opponent for the Democratic presidential nomination, former Secretary of State Hillary Clinton, has also made her opposition to inversions known.