Stopping Unpatriotic Corporate Inversions: A Vital First Step in Corporate Tax Reform

Washington, DC – With U.S. corporations fleeing, or planning to flee, the country to avoid taxes, and the Senate Finance Committee scheduled to hold hearings on the U.S. tax code with an emphasis on corporate inversions, the FACT (Financial Accountability and Corporate Transparency) Coalition supports efforts to ensure that U.S. multinational corporations remain in the country and pay their fair share of taxes.

The news has been filled lately with U.S. companies announcing plans to invert, or completing an inversion: Pharmaceutical companies AbbVie and Shire, Allergan and Valeant, Walgreen’s “moving” to Switzerland, and even the failed merger of Pfizer and AstaZeneca (which may be coming back).

All of these acquisitions would be “inversions,” a process by which U.S.-based multinational companies claim to be a foreign corporation on paper in order to avoid paying U.S. taxes. A loophole in the tax laws allows this to happen when an American corporation merges with a foreign corporation. In theory, profits earned by the newly merged company in the U.S. would still be subject to U.S. taxes, but corporate inversions are usually followed by additional tax avoidance practices to make U.S. profits appear to be earned abroad and thus not subject to U.S. taxes.

“The companies pursuing corporate inversions are among the worst of the tax dodgers,” said Rebecca Wilkins, Senior Counsel for Federal Tax Policy at Citizens for Tax Justice. “They have shifted billions of dollars in profits from the U.S. and other countries where they actually do business into offshore tax havens where they only have a mailbox. It’s especially offensive for these companies to be moving the profits that were made possible by tax incentives like the research and development credit, by physical and scientific infrastructure, by the U.S. patent office and the U.S. court system where they defend those patents. American taxpayers paid for these important things and now these companies are turning their backs on the country that made their success possible. It’s time for Congress to end this abuse.”

It’s important to note that inversions can involve no substantive changes at all and still result in a greatly reduced tax bill. For example, it was disclosed during the proposed merger of Pfizer and AstraZeneca that the management of the merged company would remain in the U.S. and operations currently in the U.S. would not be moved abroad. Similarly, Walgreen’s, which earned $16.7 billion last year from Medicare and Medicaid, would continue to be the largest drug store chain in the United States, even if it were to “relocate” to Switzerland.

As the Senate Finance Committee prepares to convene hearings today on the tax code, corporate inversion is an issue that will be discussed at length. Already, it has attracted a great deal of attention in blogs, with commentators, and even from U.S. Treasury Secretary Jack Lew, all of whom characterized inversions as nothing more than tax avoidance and questions the economic patriotism of such actions.

Other critics have noted that inversions are eroding the U.S. tax base, placing an even greater burden on individual taxpayers, small businesses, and domestic corporations. All of these groups will be called upon to pay even more to educate the population, repair and maintain roads and bridges, and meet other needs of the country as these multinationals avoid contributing their share while nonetheless taking advantage of these resources.

“Corporations that flee the country to avoid paying their fair share, leaving the rest of us to pay even more, are acting unpatriotically,” said Nick Jacobs, Communications Director for the FACT Coalition. “Thankfully, these hearings will call even greater attention to these bad actors and provide Congress with the opportunity to do something about it.”The FACT Coalition sent a letter to the members of the Senate Finance Committee outlining its principles and offering options on how to reform the corporate tax code. The letter can be found here.