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 Senator Carl Levin, who has railed for years against tax policies
he has labeled costly loopholes, said the Obama administration
should not wait for Congress to curtail a growing trend of
transactions known as "inversions."
"There are so many of these transparently phony transactions that
can be pierced if you have an Internal Revenue Service that will
look at the real world, rather than the fake structures that are
created," Levin told Reuters in an interview on Thursday.
The top U.S. corporate tax rate of 35 percent is among the world's
highest and has been a key factor in a string of companies seeking
to cut their tax bills by reincorporating abroad, usually through a
foreign acquisition.
The move puts companies' foreign earnings out of the reach of the
IRS and makes other tax-avoiding moves easier to do.
Many lawmakers have discouraged the practice, and President Barack
Obama condemned it as unpatriotic this week, saying "hard-working
Americans" would have to pay for the lost revenue.
With legislation unlikely to pass in the divided Congress, a debate
has emerged over whether the Obama administration can act
unilaterally to curb inversions.
Treasury Secretary Jack Lew told CNBC in mid-July that the IRS could
not act on its own to prevent inversions through the existing tax
code. However, Obama said on Wednesday that his administration would
look for ways of discouraging inversions on its own.
Levin, in the interview, said federal agencies must push their
authority to the limit.
"A court might tell you you're wrong, of course," he said.
"But many of these concoctions are just that - tax avoidance schemes
that have very little basis in economic reality."
RETREATING OR
DOUBLING DOWN
Companies seeking inversion deals have responded differently to the
pressure from Washington.
On Wednesday Walgreen Co., which operates the largest U.S. drugstore
chain, backed away from a plan to move its tax domicile overseas as
part of buying out Europe's biggest pharmacy chain, Alliance Boots [ABN.UL].
The reversal was unpopular with investors, who knocked Walgreen's
shares down by about 14 percent.
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On the other hand, Mylan Inc Chief Executive Heather Bresch said on
Thursday that political opposition would not prevent the
pharmaceutical company's purchase of some non-U.S. businesses from
Abbott Laboratories.
Inversions are legal, and the U.S. government has been writing rules
on them for decades. No two deals are identical and the deals have
changed shape over time along with the IRS's rules.
They essentially involve a U.S. corporation buying or forming a
foreign company, then shifting its tax domicile out of the United
States and into the foreign company and its home country.
Redomiciling for tax purposes does not usually mean that a U.S.
company fully leaves home.
Levin, a Michigan Democrat, is chairman of the Senate Permanent
Subcommittee on Investigations, a powerful panel that frequently
probes tax-avoidance strategies by corporations.
He has introduced an anti-inversion bill in Congress that would make
such deals harder to achieve. But it is unlikely to become law
because Congress is deadlocked on other issues that have consumed
their attention.
His comments on Thursday came days after three other prominent
Democratic senators - Richard Durbin, Elizabeth Warren and Jack Reed
- urged Obama to use his executive authority to crack down on the
practice.
(Reporting by Patrick Rucker and Kevin Drawbaugh; Editing by Ros
Krasny, Karey Van Hall and Frances Kerry)
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