(Bloomberg) The House of Representatives voted to prevent companies that move their tax addresses from the U.S. to Bermuda or the Cayman Islands from winning some federal contracts.
The 221-200 vote yesterday on an amendment to a spending bill, with 34 Republicans joining almost all Democrats, marks the first recorded vote by U.S. lawmakers attempting to stem the recent tide of companies reincorporating outside the U.S. Still, it probably won’t change much about how companies operate or obtain federal contracts.
If the limit becomes law, it would apply for one year and only to contracts for certain energy and water projects. It wouldn’t affect most of the companies in the latest round of inversion transactions, which are using addresses in the U.K., Ireland and Switzerland, not Bermuda or the Cayman Islands.
“It’s legal, they can do it, but what we’re not going to do is provide them with the opportunity for federal contracts,” said the proposal’s sponsor, Democratic Representative Rosa DeLauro of Connecticut. “We’re going to shut that down.”
Existing laws designed to prevent such companies from winning U.S. contracts have failed to stop the companies, including Ingersoll-Rand Plc, from getting government business, a Bloomberg News investigation earlier this month found.
House lawmakers adopted the amendment that would block contracts on the Energy and Water appropriations bill, H.R. 4923, from going to any company that had its headquarters in the U.S. and later moved its address to Bermuda or the Cayman Islands. The ban would cover fiscal year 2015—from Oct. 1, 2014, through Sept. 30, 2015.
House Democrats attempted a similar move today, offering a procedural motion that would have prevented all such companies from benefiting from an extension of bonus depreciation. That effort failed on a vote of 191-229.
U.S. companies, frustrated by the high corporate tax rate and attracted by opportunities overseas, are continuing to explore mergers that locate their tax addresses outside the U.S.
Medtronic Inc., a Minnesota medical device maker with $17 billion in annual sales, announced plans last month to become Irish. Six other U.S. companies are in the process of moving abroad, and Pfizer Inc., Monsanto Co. and Walgreen Co. also have flirted with the idea this year.
Ingersoll-Rand relocated its tax address more than a decade ago in the first wave of inversions. It is now incorporated in Ireland and run from North Carolina.
Without a change to the U.S. tax code, future inversions may cost the government $19.5 billion in forgone revenue over the next decade, a congressional panel estimated this year. That doesn’t count the billions avoided by the 36 U.S. companies that already have shifted their address overseas.
Democrats have proposed policy changes that would make it harder for U.S.-based companies to move outside the country for tax purposes. Republicans, who control the House, have said any changes should be made as part of a broader revamp of the tax code, which isn’t likely to happen until 2015 at the soonest.
Republicans hadn’t challenged DeLauro’s amendment the last two times she tried it, on the Defense and Transportation—Housing and Urban Development spending bills. Both times, the plan was adopted by voice vote.
Yesterday, Republicans challenged the language and lost a recorded vote. Among the House Republicans who supported DeLauro was Dave Camp of Michigan, chairman of the Ways and Means Committee. Other Republicans in favor included Shelley Moore Capito of West Virginia and Cory Gardner of Colorado, who are running for the U.S. Senate.
Camp, the author of the Republican tax-revamp plan, said his vote in favor of DeLauro’s amendment shouldn’t be interpreted as a signal that Congress will move quickly to ban contracts for companies that have moved their tax addresses.
“That was really a rhetorical position because it isn’t really going to have any effect,” he said in an interview. “I thought it was important to highlight the issue.”
—With assistance from Zachary R. Mider in New York.