Schumer to release offshore tax bill

Sen. Charles Schumer (D-N.Y.) released legislation Wednesday seeking to roll back the tax benefits for companies that reincorporate abroad.

Schumer’s bill takes aim at a maneuver known as earnings stripping, a process by which U.S. subsidiaries can take tax deductions on interest stemming from loans from a foreign parent.

The measure comes as Democrats continue to criticize companies like Burger King that have sought to shift their legal address abroad. Schumer, the No. 3 Democrat in the Senate, has for months said that any comprehensive legislative fix for inversions needed to tackle earnings stripping as well.

{mosads}“Earnings stripping is the number one incentive driving the wave of inversions we’ve seen in recent months and we need to shut it down,” said Schumer.

“This bill curtails the incentive for companies to use shady accounting gimmicks to avoid paying their U.S. tax obligations. The only way to solve this problem for good is passing legislation, and our preference is to work with our Republican colleagues to pass a strong bill.”

Senate Majority Whip Dick Durbin (D-Ill.), another strong critic of the recent inversion wave, has joined Schumer’s bill, along with eight other Senate Democrats.

Senate Finance Committee Chairman Ron Wyden (D-Ore.) has been working with his panel’s top Republican, Sen. Orrin Hatch (Utah), on potential bipartisan legislation on the matter, but aides have questioned how quickly any inversions bill could get a vote in the chamber.

Leading Democrats have sought to essentially still count U.S. companies as American for tax purposes if they merge with a smaller foreign competitor. With Congress gridlocked, Treasury Secretary Jack Lew has said that the administration would decide in “the very near future” what steps it can take to limit inversions.

House Ways and Means Chairman Dave Camp (R-Mich.) and Jason Furman, a top economic adviser to President Obama, underscored the divide between the two parties at a joint event on Wednesday.

Both the administration and GOP lawmakers believe a broad overhaul of the tax code is the best way to curb inversions.

But Furman also said that any such tax reform deal would have to include tough anti-inversion measures, because there would always be “warm island countries” with lower tax rates than the U.S.

But Camp said that previous legislation to stop the offshore deals, passed in 2004, hadn’t worked, and suggested he didn’t think that rewrite of the tax code would need to take aim at the deals. 

“Clearly, it hasn’t worked,” Camp said. “It’s still an ongoing problem.”

In the interim, Camp and other top GOP lawmakers have said that targeted legislation could give companies incentives to leave the U.S. altogether.

Schumer’s measure, the New York senator said, would deter companies from seeking to invert without giving an advantage to companies that have already moved offshore.

Schumer’s bill would cut in half the amount of interest deduction that companies can claim, from 50 percent to 25 percent. It also seeks to limit companies that have already inverted from claiming the deduction in future years. 

This post was last updated at 6:52 p.m.

Tags Chuck Schumer Dick Durbin Jack Lew Jason Furman Orrin Hatch Ron Wyden

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