Senate Democrats propose exit tax for inverting companies
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[September 20, 2014]
By Emily Stephenson
WASHINGTON (Reuters) - Two Senate
Democrats want to force U.S. companies to pay an exit tax on any profits
held overseas if the companies decide to reincorporate abroad to cut
their tax bills, the latest in a slew of proposals to stem such
Senators Sherrod Brown and Dick Durbin on Friday released details
of a bill that would require foreign earnings that have not been
repatriated, or brought into the United States, to be taxed as
income at the point when a U.S. company inverts.
Democratic lawmakers want to take immediate steps to slow or stop a
wave of inversions that threaten to undermine the U.S. corporate tax
base. In these deals, a U.S. company typically buys a foreign rival,
then locates the tax domicile of the combined entities abroad to
escape higher U.S. taxes.
"Everyone knows that before you leave a restaurant you have to
settle your tab," Brown, of Ohio, said in a statement. "Corporations
shouldn't get to play by different rules."
He previously called for consumers to steer clear of Burger King
Worldwide <BKW.N> after it said it would move its tax base to Canada
as part of a deal to buy coffee-and-donut chain Tim Hortons
<THI.TO>. Brown said hamburger customers should instead frequent
Wendy's <WEN.O> or White Castle, both based in Ohio.
Businesses say the inversion deals help them pay the least taxes
possible, which investors expect. They also say U.S. taxes are
inordinately high compared with rates in many other countries,
particularly for profits earned overseas.
Republicans want to address the problem through broad corporate tax
reform that lowers rates. But many Democrats want to act sooner.
Proposals range from making it more difficult to invert to blocking
certain tactics foreign companies use to reduce U.S. taxes.
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Foreign profits earned by U.S.-based companies are not taxed in the
United States until they are repatriated, so many companies hold
cash and invest overseas to avoid those taxes.
Lawmakers have bemoaned this trend, which they say "traps" cash
abroad. Brown's plan gets at both issues by taxing those foreign
earnings when a company inverts.
Citizens for Tax Justice, a lobby group that has floated a similar
idea, said individuals pay an "exit" tax on unrealized capital gains
if they renounce their U.S. citizenship.
The inversion plan is similar and would remove a "significant
incentive" for companies to move abroad, the group argued in a paper
earlier this month.
(Reporting by Emily Stephenson; Editing by Kevin Drawbaugh and Dan
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