Corporate Inversions

Increasing problem: There has been a rapid increase in the number of U.S.-based multinational companies renouncing their citizenship by moving their addresses overseas to avoid paying U.S. taxes. Since January 2013, 19 companies have announced plans to reincorporate overseas for tax purposes – 14 of them having done so this year alone, according to the Wall Street Journal. Overall, 76 companies have inverted since 1983, according to the Congressional Research Service.

Costing taxpayers: Corporate inversions are costing the U.S. tax base billions of dollars in lost revenue, leaving ordinary Americans to foot the bill. The Joint Committee on Taxation estimates that House legislation to stop corporate inversions would save the U.S. tax base $33 billion over 10 years.

Inverters continue to reap benefits: These companies continue to benefit from being headquartered in the U.S., with our robust financial markets, protection of intellectual property rights, support of research and development, along with our stable communities and wealth of educated workers. 

Requiring immediate action: As we work diligently towards comprehensive tax reform, we need to enact legislation now to prevent companies from simply changing their tax domicile to avoid paying U.S. taxes.

STOP CORPORATE INVERSIONS ACT OF 2014

• On May 20, Ways and Means Committee Ranking Member Sander Levin introduced the Stop Corporate Inversions Act of 2014, which broadly follows the proposal laid out by the President in his FY2015 budget. Sen. Carl Levin introduced similar legislation in the Senate.
• Currently, Section 7874 of the tax code prohibits U.S. companies from reincorporating overseas through an inversion unless stakeholders of the foreign company maintain more than 20% of the combined foreign corporation. The Stop Corporate Inversions Act would change the threshold so that the stakeholders of the foreign company must maintain at least 50% of the combined foreign corporation.
• The bill would also prohibit U.S. companies from reincorporating overseas through an inversion if the affiliated group that includes the combined foreign entity is managed and controlled in the U.S. and conducts significant domestic business activities in the U.S.
• As under current law, the bill would continue to provide a broad exception from Section 7874 rules if the affiliated group has substantial business activities (25% of employees by number, employees by compensation, assets, and income) in the foreign country where the combined entity is domiciled.
• The bill would be permanent and apply to inversions completed after May 8, 2014.

Additional resources:

• MAP: Editorial Boards Nationwide: End the Inversion Craze
• H.R. 4679: Stop Corporate Inversions Act of 2014
• H.R. 4985: Stop Corporate Expatriation and Invest in America's Infrastructure Act of 2014 

• CRS Report: Corporate Expatriation, Inversions, and Mergers: Tax Issues
• Joint Committee on Taxation score for H.R. 4679 (May 2014)
• Joint Committee on Taxation score for H.R. 4679 (UPDATED December 2014)