Pocan Introduces Legislation to Curb Corporate Tax Inversions
WASHINGTON, D.C.—U.S. Rep. Mark Pocan (WI-02) today introduced three pieces of legislation to close tax loopholes which allow U.S. corporations to use so-called “tax inversions” to reduce a company’s tax burden.
“Large corporations have taken advantage of tax loopholes to hide billions in corporate profits overseas and avoid paying taxes in the United States,” said Rep. Mark Pocan. “Enough is enough. This legislation will stop corporate deserters from abusing the U.S. tax system. Main street businesses across Wisconsin and across the United States are playing by the rules and paying their share while Wall Street corporations, with their teams of lawyers, are finding new tax loopholes to avoid paying their share of taxes; that’s just wrong.”
A recent report by Bloomberg shows multinational companies accumulated nearly $2 trillion in accounts outside the U.S., in 2013 – an increase of 11.8 percent as corporations shift more profits to offshore tax havens.
The Obama Administration is also considering executive action to curtail tax benefits for U.S. companies that use inversions to reduce their tax burden.
Corporate inversion is a process by which an existing U.S. corporation changes its country of residence, typically to one that has lower tax rates and less stringent corporate regulations. The process involves re-incorporating overseas in order to reduce the tax burden on income earned abroad. Corporate inversions are used by companies that receive a significant portion of their income from foreign sources.
Corporate Fair Share Tax Act
“Earnings stripping is even more costly than standard inversions,” said Rep. Pocan. “This legislation closes the loophole used by companies to shirk paying their taxes and eliminates the advantage for companies to shift debt here.”
This provision cracks down on corporate earnings stripping, a method of avoiding taxes in which U.S.-based groups are loaded up with debt owed to the affiliated foreign company; the U.S. entity then pays high levels of interest on this debt, which nets them significant tax deductions or wipes out taxable income in the U.S. Specifically, the provision limits the deductions a corporation may claim to a level at which the U.S. entity’s share of interest on debt is proportionate to the U.S. entity’s share of earnings. The Treasury Department estimates this would increase revenue by $48.6 billion over the next ten years.
Putting America First Corporate Tax Act
“Today, corporations are not required to pay taxes on overseas profits immediately,” said Rep. Pocan. “This legislation closes an egregious loophole and requires companies to pay taxes on overseas profits immediately instead of postponing payments and indefinitely hide income in tax havens.”
Currently corporations can defer paying taxes on foreign profits until that money is repatriated back to the U.S., often via dividends to shareholders. Our provision changes Section 956 of the tax code to close this loophole and require controlled foreign corporations to pay U.S. taxes on future active income beginning on December 31, 2014. The Congressional Budget Office estimates that ending this loophole would increase revenue over the next ten years by $114 billion.
Corporate Transparency and Accountability Act
“The American people deserve to know which companies are avoiding paying their taxes” said Rep. Pocan. “This legislation will increase transparency on corporate financial reports and ensure the data is easily available to the public.”
This provision restores a previous requirement of corporations to disclose both pre-tax profits and the total amount paid in state and federal taxes. The language also mandates this information be publicly available on the SEC website in a way that is searchable, sortable, and downloadable.