Pocan Introduces Legislation to Limit Corporate Tax Inversions
WASHINGTON, D.C. – U.S. Rep. Mark Pocan (WI-02) introduced the Corporate Fair Share Tax Act and the Putting America First Corporate Act to prevent corporations from using “tax inversions” to reduce a company’s U.S. tax burden and ensure they cannot avoid taxes by hiding profits overseas.
“It is wrong that Wall Street corporations are using tax loopholes to skirt their responsibilities while small business owners and hard-working Americans play by the rules,” said Rep. Mark Pocan. “This legislation will eliminate a major incentive for corporations to leave the United States and ensure that companies pay their taxes on overseas profits immediately. We must stop corporate deserters from abusing the U.S. tax system and force these companies to contribute their fair share.”
Corporate inversion is a process by which an existing U.S. corporation shifts it’s company’s headquarters to a country with a smaller tax burden and assuming the label of a “foreign” corporation, even as business activity and general operations frequently remain on American soil. These firms utilize U.S. resources, infrastructure, and customer base while renouncing their American identity to avoid paying taxes in our country.
Recent reports highlight a potential merger between Pfizer, an American pharmaceutical corporation, and Ireland-based drug company Allergan, a deal which may include Pfizer pursuing an inversion. This is just the latest example in a long list of United States corporations taking advantage of this massive loophole to avoid paying taxes.
Corporate Fair Share Tax Act
This bill 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 legislation 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
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 952 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.
The legislation is currently cosponsored by Reps. Keith Ellison (D-MN), John Garamendi (D-CA), Barbara Lee (D-CA), Jerrold Nadler (D-NY), and Eleanor Holmes Norton (D-DC). The bills are also endorsed by Americans for Tax Fairness, Citizens for Tax Justice, Public Citizen, American Sustainable Business Council, and FACT Coalition.