U.S. Secretary of the Treasury Jacob Lew in a speech Monday at the Tax Policy Center that the department will decide “in the very very near future” on how to stymie a recent upswing in the tax-motivated corporate inversions.
The Treasury Secretary also reiterated that the Obama administration is weighing regulatory action to curtail the economic appeal of corporate inversions if lawmakers don’t reach an agreement.
Spate of corporate inversion deals
Tax inversions have become increasingly popular with a variety of American companies in recent years. Tax inversions help U.S. companies to pay lower tax rates by setting up offices in a country with lower tax rates. According to the Congressional Research Service analysis, a record number of companies went overseas in 2014 in search of tax advantages, with nearly 50 companies moving abroad in the first half of the year, up from only 29 in the previous two decades.
However, tax inversions have come under criticism recently, and Senate Democrats are working to close the tax loophole.
In his Monday speech, the Treasury Secretary strongly urged Congress to curb the practice on its own, but suggested the Treasury might move administratively if lawmakers didn’t act.
Corporate inversion: Retroactive legislative fix sought
In his speech, Lew said a legislative fix should be retroactive to last May and urged Congress to act quickly. He reiterated that, “The administration is clear-eyed about the possibility that Congress may not move quickly as necessary to respond to the growing wave of inversions”.
Soon after his speech, a panel of tax and regulatory experts debated whether Treasury has the authority to act administratively against inversions. Harvard Professor Steve Shay acknowledged that regulations could only limit, but not stop inversions. He said: “Some deals would still go forward, to the extent they are good business deals”.
Interestingly, Democrats disagree among themselves about the specifics of corporate inversion legislation. Congressional Republicans generally have said retroactivity is unfair. Instead they prefer a broad tax-code overhaul that would make the U.S. more attractive by lowering rates and bringing U.S. rules on multinational corporations in line with other developed countries.
John D. Mckinnon of The Wall Street Journal points out that the slow pace of new corporate inversion deals in the past few weeks could be providing further incentive for lawmakers to move slowly. Moreover, he believes the prospects for anti-inversion legislation appear dim, particularly given the short window before lawmakers return home late this month to campaign for re-election.