James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
Levin: Bill limiting corporate inversions later this week
Author: James F. McDonough
Date: May 28, 2014
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The recent spate of corporate inversions, in which a U.S. business merges with a smaller foreign company in order to re-domesticate and thereby enjoy a more favorable tax environment, has much of Washington talking.
Sen. Carl Levin, D-Michigan, said May 14 that he will introduce legislation later this week that would limit the ability of U.S. companies to conduct such a maneuver, according to Bloomberg. His bill would alter the rule that sets the minimum requirement for foreign ownership.
At this time, the foreign company only needs to hold a 20 percent stake in the new business that is created, the news source explained. This is favorable to some large U.S. businesses that want to move abroad by purchasing a smaller company but do not want to give up a controlling share in their business. President Barack Obama has proposed raising that minimum to 50 percent.
“If you are serious about stopping people from changing their address to avoid paying taxes, you’ve got to close that loophole,” said Levin, according to Bloomberg.
The Senate’s chief tax writer, Ron Wyden, would like to enact the same provision and date it back to May 8, 2014, according to CNN Money. This rule would likely make two mergers that are right now underway significantly less attractive to the larger U.S. based companies that are pushing for them. Currently Pfizer, a large U.S. pharmaceutical company, is attempting to merge with AstraZeneca, and Valeant is attempting to merge with Allergan.
“There is no policy reason to permit a domestic entity to engage in an inversion transaction when its owners retain a controlling interest in the resulting entity, [and] only minimal operational changes are expected,” the Treasury Department wrote, explaining Obama’s proposal.
Politicians on both sides of the issue would like to see an end to these inversions, but they largely disagree on how they should be stopped. This deadlock may make it difficult to enact any meaningful law.
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