Rep. Mark Pocan, D-Wis., has introduced two pieces of legislation to combat corporate tax inversions and tax deferral.
The Corporate Fair Share Tax Act and the Putting America First Corporate Act would prevent corporations from using “tax inversions” to reduce a company’s U.S. tax burden and hide profits overseas.
Corporate inversion is a process in which a U.S. corporation shifts its headquarters to a country with a lower tax rate, frequently through a merger with a company abroad.
“It is wrong that Wall Street corporations are using tax loopholes to skirt their responsibilities while small business owners and hard-working Americans play by the rules,” said Pocan in a statement. “This legislation will eliminate a major incentive for corporations to leave the United States and ensure that companies pay their taxes on overseas profits immediately. We must stop corporate deserters from abusing the U.S. tax system and force these companies to contribute their fair share.”
The Corporate Fair Share Tax Act would crack down on corporate earnings stripping, a method of avoiding taxes in which U.S.-based groups are loaded up with debt owed to the affiliated foreign company. The U.S. entity then pays high levels of interest on this debt, giving them significant tax deductions or even eliminating taxable income in the U.S. The legislation would limit the deductions a corporation may claim to a level at which the U.S. entity’s share of interest on debt is proportionate to the U.S. entity’s share of earnings. The Treasury Department estimates this would increase revenue by $48.6 billion over the next 10 years.
The Putting America First Corporate Tax Act would discourage corporations from deferring tax payments on foreign profits. The legislation would change Section 952 of the Tax Code to require controlled foreign corporations to pay U.S. taxes on future active income beginning on Dec. 31, 2014. The Congressional Budget Office estimates that ending this practice would increase revenue over the next ten years by $114 billion.
The legislation has been co-sponsored by Reps. Keith Ellison, D-Minn., John Garamendi, D-Calif., Barbara Lee, D-Calif., Jerrold Nadler, D-N.Y., and Eleanor Holmes Norton, D-D.C. The bills have been endorsed by Americans for Tax Fairness, Citizens for Tax Justice, Public Citizen, the American Sustainable Business Council, and the FACT Coalition.
“While large multinational corporations are making record profits, many of them take advantage of a tax code riddled with loopholes that helps them winnow their tax bills down significantly, often paying nothing at all,” said Rebecca J. Wilkins, executive director of the FACT Coalition, in a statement. “The two pieces of legislation include commonsense measures to close some of the most egregious offshore tax loopholes.”
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