Dem senators want exit tax for inversions

Two top Democratic senators want companies seeking to shift their legal address abroad to pay an exit tax as they go.

Senate Majority Whip Dick Durbin (D-Ill.) and Sen. Sherrod Brown (D-Ohio) have introduced a bill that would force companies seeking to reincorporate abroad to first pay taxes on cash stashed offshore.

Rep. Lloyd Doggett (D-Texas) has introduced similar legislation in the House, as Democrats open yet another avenue of attack on the cross-border mergers known as inversions.

“Everyone knows that before you leave a restaurant you have to settle your tab,” Brown said. “Corporations shouldn’t get to play by different rules.

{mosads}The U.S., unlike many other industrialized countries, taxes companies on income made around the world. Companies are allowed to defer paying those taxes until the cash is brought to the U.S., and get credits for taxes paid to foreign governments.

That set-up, many experts say, has led to multinational corporations building up huge stashes of offshore income — more than $2 trillion according to some estimates.

The pharmaceutical company AbbVie and the medical device maker Medtronic have about $41.5 billion abroad between them, according to data from Audit Analytics provided by the two senators.

AbbVie and Medtronic are among the companies that announced inversions this year. Burger King’s merger with the Canadian doughnut chain Tim Hortons has been the most prominent of the cross-border mergers.

“When individuals decide to renounce their U.S. citizenship, they must pay their tax bill before they leave. Corporations should do the same,” Durbin said.

Democrats have sought legislation that would essentially make it impossible for U.S. companies that merge with smaller foreign competitors to be counted as anything but American for tax purposes.

But Republicans have balked at that plan, with most holding out for a broader overhaul of the tax code. That’s left the Treasury Department to examine what administrative actions it can take to limit the appeal of the deals.

Republicans have also generally proposed moving the tax code in the opposite direction of Brown and Durbin’s proposal by limiting U.S. taxation of offshore income. GOP lawmakers say such an approach, called a territorial system, would give companies more incentive to invest in the U.S.