A group of Democratic lawmakers has introduced legislation designed to prohibit federal contracts to multinational companies that use corporate inversions to cut their tax rates.
Rep. Rosa DeLauro, D-Conn., and Lloyd Doggett, D-Texas, and Sen. Dick Durbin, D-Ill., and Carl Levin, D-Mich., introduced the No Federal Contracts for Corporate Deserters Act on Tuesday.
The legislation would bar contracts from going to businesses that incorporate overseas, are majority-owned by shareholders of the old U.S. corporation, and do not have substantial business opportunities in the foreign country in which they are incorporating.
“For too long we have let companies avoid their tax obligations at the expense of companies who pay their fair share,” DeLauro said in a statement. “Even worse, the federal government has been subsidizing this bad behavior, by continuing to reward inverted companies with lucrative federal contracts. These companies take advantage of our education system, our research and development incentives, our skilled workforce, and our infrastructure, all supported by U.S. taxpayers, to build their businesses. But when the tax bill comes due, they hide overseas. Yet suddenly, when federal contracts are being applied for, they are all as American as Uncle Sam once again. This has to stop.”
The legislation aims to stem the tide of U.S.-based companies relocating their tax domiciles to low-tax countries while retaining much of their business in the U.S.
“With every successful inversion, the tax burden increases on the rest of us to pay what the corporate inverter doesn’t,” said Durbin. “The burden is made worse by allowing companies to profit off of federal contracts paid for by U.S. taxpayers, while those very companies run from their U.S. tax responsibility. We should make permanent the long-standing ban on federal contracts for corporations that have renounced their American corporate citizenship.”
Current law defines a company as being inverted if at least 80 percent is owned by American shareholders after it reincorporates overseas. The No Federal Contracts for Corporate Deserters Act uses the same 50 percent threshold as the Stop Corporate Inversions Act of 2014, introduced by Sen. Levin and Ways and Means Committee ranking member Sandy Levin, D-Mich. in May. DeLauro, Durbin and Doggett are all cosponsors of that bill.
That effective date is consistent with the effective date of the Stop Corporate Inversions Act. The No Federal Contracts for Corporate Deserters Act also curbs subcontracting to inverted corporations by allowing federal agencies to ban businesses from holding federal contracts if they subcontract with inverted corporations.
“Americans are rightly outraged at the wave of corporations seeking to abandon the U.S. to avoid their taxes,” Carl Levin said in a statement. “We ought to put a stop to all inversions, but at the very least, we should stop these companies from receiving federal funding from the same American families who have to pick up the tax burden inverted companies shrug off.”
The rate of corporate inversions has picked up in recent years, with drug maker AbbVie among the most recent to announce they are moving their tax address overseas. Congress passed legislation in 2004 with the goal of preventing companies that move overseas from getting federal contracts, but many found ways around the law (see Ingersoll-Rand Finds Escaping U.S. Tax No Penalty as Contracts Flow). Earlier this month, the House voted to approve an amendment that would limit federal contracts for certain energy and water contracts for one year for U.S. companies that move to the Cayman Islands or Bermuda (see Curb on Contracts Exiting U.S. Wins in House).
“Corporations that renounce their citizenship not only invert their business operations but pervert our laws,” said Doggett. “Those dodging their fair share of taxes should not be rewarded with taxpayer-funded government contracts.”