President Barack Obama put the blame on accountants for the wave of companies doing tax inversions.
During a press conference Wednesday following a summit with African leaders, Obama said, “You have accountants going to some big corporations—multinational corporations but that are clearly U.S.-based and have the bulk of their operations in the United States—and these accountants are saying, you know what, we found a great loophole—if you just flip your citizenship to another country, even though it’s just a paper transaction, we think we can get you out of paying a whole bunch of taxes.”
In contrast, an article in The Wall Street Journal on Wednesday attributed the trend to the legal profession, describing how the international law firm Skadden, Arps, Slate, Meagher & Flom persuaded a number of corporate clients to do inversions, with the help of banks such as J.P. Morgan Chase and Deutsche Bank. So far, many of the deals have occurred among pharmaceutical companies such as AbbVie's recent acquisition of Shire in the United Kingdom. On Wednesday, Walgreen's CEO announced that his company plans to acquire the rest of the European drug store chain Alliance Boots, but its tax address will remain in the U.S. (see Walgreen Stays in U.S. in $15.3 Billion Alliance Boots Deal)
Obama argued that inversions place an unfair burden on other taxpayers. “Well, it’s not fair. It’s not right. The lost revenue to Treasury means it’s got to be made up somewhere, and that typically is going to be a bunch of hardworking Americans who either pay through higher taxes themselves or through reduced services. And in the meantime, the company is still using all the services and all the benefits of effectively being a U.S. corporation; they just decided that they’d go through this paper exercise.”
Obama pointed out that there is a bill in Congress that would help prevent inversions, but he said his administration is also looking into what it can do.
“So there is legislation working its way through Congress that would eliminate some of these tax loopholes entirely,” he said. “And it’s true what Treasury Secretary Lew previously said, that we can’t solve the entire problem administratively. But what we are doing is examining are there elements to how existing statutes are interpreted by rule or by regulation or tradition or practice that can at least discourage some of the folks who may be trying to take advantage of this loophole.”
He noted that many Americans are worried about the trend. “And I think it’s something that would really bother the average American, the idea that somebody renounces their citizenship but continues to entirely benefit from operating in the United States of America just to avoid paying a whole bunch of taxes,” said Obama. “We’re reviewing all of our options. As usual, my preference would always be for us to go ahead and get something done in Congress. And keep in mind it’s still a small number of companies that are resorting to this, because I think most American companies are proud to be American, recognize the benefits of being American, and are responsible actors and willing to pay their fair share of taxes to support all the benefits that they receive from being here.
“But we don't want to see this trend grow,” he added. “We don't want companies who have up until now been playing by the rules suddenly looking over their shoulder and saying, you know what, some of our competitors are gaming the system and we need to do it, too. That kind of herd mentality I think is something we want to avoid. So we want to move quickly—as quickly as possible.”
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