Tax writers in House debate reform, inversions

Tax writers in the House used a hearing Tuesday on the Organisation for Economic Co-operation and Development’s international tax recommendations to call for business tax reform. 

“This must be the Congress of action that takes the tough but necessary steps to reform our tax code,” said Rep. Charles Boustany (R-La.), chairman of the House Ways and Means Committee’s tax-policy subcommittee. The hearing was the subcommittee’s first since Boustany became its chairman.

{mosads}Boustany said that since Congress last passed comprehensive tax reform in 1986, other countries have reformed their tax codes to attract international investment and multinational companies have taken steps to lower their tax burdens.

He brought up the recent announcement that U.S. pharmaceutical giant Pfizer is going to merge with Irish-based Allergan, with the merged company keeping Allergan’s legal residence in Ireland. The transaction would be the largest-ever example of a practice known as a corporate inversion, in which a company reincorporates overseas to take advantage of a lower tax rate.

“That is not the first, nor will it be the last, foreign acquisition pushed over the line” by the U.S. tax code, he said.

Rep. Pat Tiberi (R-Ohio) asked Robert Stack, Treasury Department deputy assistant secretary for international tax affairs, why Congress and the Obama administration can’t help them lower the corporate tax rate and move to a system in which large U.S. businesses are on an equal playing field with foreign businesses. 

“I think you’ve just described the president’s plan,” Stack replied. Obama’s plan would lower the corporate rates, broaden the base and put U.S. corporations on an equal footing in certain jurisdictions, he said.

The subcommittee’s ranking member, Rep. Richard Neal (D-Mass.), also said he hoped the hearing could be used as a “springboard” for revenue-neutral business tax reform.

Neal asked Stack if there are any steps that Congress could take prior to passing tax reform that could curb inversions.

Stack replied that there are actions Congress could take. Under current law, inversions are prohibited for tax purposes if shareholders of the U.S. company own more than 80 percent of the merged company, and Stack said that it would be helpful for Congress to lower that threshold to 50 percent. 

Congress could also plug “interest stripping” rules so that inverted companies would not be able to take excess income out of the United States in the form of interest. “I don’t see those as necessarily having to wait” for tax reform, he said. 

Stack said that legislation introduced by Rep. Sander Levin (D-Mich.), which is similar to a proposal in President Obama’s budget request, would slow inversions by itself. 

But Rep. Mike Kelly (R-Pa.) disagreed. He said he’d rather see a “carrot” than a “bigger stick.” 

Stack said that the U.S. does need to be able to raise revenue and the corporate tax rate can’t just be lowered to zero.