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Hatch Hopeful Of Short-Term Anti-Inversion Legislation

by Mike Godfrey, Tax-News.com, Washington

15 August 2014

In an op-ed written for the Washington Post, United States Senate Finance Committee Ranking Member Orrin Hatch confirmed that there may be steps that Congress can take in the short-term to address the problem of "corporate inversions," but he continued to urge a cautious approach from lawmakers.

So far, the Democratic Party and President Barack Obama have put forward proposals that would increase the minimum foreign shareholding cap to be held by the foreign company's shareholders after a merger, in order for the combined entity to be allowed to move away from America's 35 percent corporate income tax rate, but there have also been proposals to include more stringent rules governing the deduction of interest expense and the inclusion of management and control provisions in a new definition of an inverted company.

Although concerned by a spate of inversions, Hatch has previously warned that the proposed short-term fixes would be "punitive" and could have unintended consequences, but had also left the door open for further discussions on short-term legislative proposals, acknowledging that an agreement on tax reform could take some time.

In his op-ed, he returned to that theme. While accusing congressional Democrats and the President of "playing election-year politics with the growing challenge of corporate inversions," he also warned that their proposals "contain punitive and retroactive provisions that would exacerbate the problem."

While he made no specific suggestions, he re-confirmed that, in the interim, before comprehensive tax reforms can be agreed, "there may be a way to address inversions in a bipartisan manner." He insisted, however, that such short-term proposals should "be a bridge to our ultimate solution to address the cause of the problem: our obsolete tax code."

The proposals "should not be retroactive. Imposing arbitrary retroactive restrictions would further complicate the goal of comprehensive tax reform and impose additional burdens on US businesses. The approach should move us toward a territorial tax system, whereby businesses would be taxed only on what they earn within the US, and should not enhance the bias in favor of foreign takeovers; and, most important, any interim proposal must be revenue neutral," he wrote.

After reading his remarks, the US Chamber of Commerce's Executive Vice President for Government Affairs, Bruce Josten, welcomed Hatch's message that "the common proposals now floating around the Senate are harmful non-starters, and calls for comprehensive tax reform are the only long-term, durable solution."

He added that Hatch is correct in the conditions he has placed on any short-term measures, and professed that "it's long overdue for policymakers to level the playing field for US businesses."

TAGS: compliance | tax | business | tax compliance | law | mergers and acquisitions (M&A) | corporation tax | multinationals | legislation | transfer pricing | United States | tax breaks | tax reform

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