Six Democrats in Congress have sent a letter to President Obama, encouraging him to deny federal contracts to inverted corporations.
American corporations have exploited a loophole in current law by merging with a smaller foreign company and assuming the company’s address for tax purposes. That enables them to dodge billions in taxes while continuing to bid for and win taxpayer-funded federal contracts
“The companies engaging in these tax gimmicks take advantage of our education system, our research and development incentives, our skilled workforce, our infrastructure, our patent and court systems, and our national security, all supported by U.S. taxpayers, to start and build their businesses,” Rep. Rosa DeLauro, D-Conn., Sen. Carl Levin, D-Mich., Rep. Lloyd Doggett, D-Texas, Sen. Dick Durbin, D-Ill., Rep. Sander Levin, D-Mich., and Sen. Jack Reed, D-R.I., wrote Wednesday. “When the tax bill comes due, they renounce their citizenship. But, perhaps even more outrageously, they also seek, and win, taxpayer-funded federal contracts from the same country they renounced. Our federal contracting rules should not allow these companies to be rewarded with federal contracts.”
Current federal law contains a ban on awarding federal contracts to inverted corporations. The ban has been a part of annual funding bills every fiscal year since 2008. However, the ban includes a loophole—which corporations have increasingly exploited—that allows U.S. corporations to move their tax domicile overseas by merging with a smaller foreign competitor that is at least one-quarter as large as the former U.S. corporation.
All six senators and representatives are co-sponsors of the No Federal Contracts for Corporate Deserters Act, which would bar contracts from going to businesses that reincorporate overseas, are majority-owned by shareholders of the old U.S. corporation, and do not have substantial business activities in the foreign country in which they are incorporating. It would also strengthen current law by curbing most subcontracts with inverted corporations.
The rate of corporate inversions has picked up in recent years, with medical device maker Medtronic among the most recent to announce they are moving their tax addresses overseas to avoid paying their fair share of U.S. taxes, the lawmakers noted.
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