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| Sen. Chuck Schumer |
Amid growing action from U.S. lawmakers to curb corporate inversions, top Senate Democrats revealed a plan to rein in the deals that would allow med tech companies to shift their domiciles abroad for tax-paying purposes.
As Reuters reports, senators Dick Durbin (D-IL) and Chuck Schumer (D-NY) unveiled a bill on Wednesday that would restrict earnings stripping, a process in which companies avoid paying U.S. taxes by moving domestic profits to jurisdictions with lower tax rates. In particular, the proposal would reduce the amount of interest deductions a company can claim to 25% from 50% of income, even for companies with finalized inversion deals.
"Earnings stripping is the number one incentive driving the wave of inversions we've seen in recent months and we need to shut it down," Schumer said in a statement. "This bill curtails the incentive for companies to use shady accounting gimmicks to avoid paying their U.S. tax obligations."
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| Treasury Secretary Jacob Lew |
The move comes on the heels of more government pushback, as earlier this week Treasury Secretary Jacob Lew said he would decide "in the very near future" what steps the Obama administration could take to pare back corporate inversions, The New York Times reports. Lew told an audience at the Urban Institute that while the Treasury Department was ready to take action to limit inversion deals, he would prefer that Congress pass a law to ban inversions or rewrite the tax code to eliminate loopholes.
"Only a change in the law can shut the door, and only tax reform can solve the problems in our tax code that lead to inversions," Lew said (as quoted by the NYT).
But the legislative action has not deterred devicemakers with pending deals from forging ahead with inversion plans. Last month, med tech behemoth Medtronic ($MDT) hired former senators to lobby against anti-inversion legislation and continues to defend its $43 billion deal with Irish devicemaker Covidien ($COV) as not purely motivated by tax-inversion purposes. In a June call with investors, CEO Omar Ishrak acknowledged that the company would enjoy certain perks by moving operations abroad but emphasized Medtronic's $10 billion technology investment in the U.S. over the next 10 years.
- read the Reuters story
- here's Sen. Schumer's statement
- get more from the NYT (sub. req.)
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