Wednesday, September 24, 2014

Senate Legislation Would Address Inversions and Earnings Stripping

Fearing a wave of corporate inversion mergers unless Congress acts, Senators Charles Schumer (D-NY) and Richard Durbin (D-IL) introduced legislation, S. 2786, to address corporate inversions, specifically targeting the practice of earnings stripping in which inverted companies load their U.S. subsidiary up with excessive debt that is “owed” to the foreign headquarters so they can deduct interest payments on this debt, further allowing the company to avoid paying U.S. taxes.

The Schumer-Durbin legislation is the first Senate Democratic proposal to address the practice of earnings stripping by companies that move their domicile overseas and is designed to work in harmony with the efforts of Senate Finance Committee Chair Ron Wyden (D-OR) and Senator Carl Levin’s (D-MI) efforts to put together a comprehensive package of legislative proposals to address corporate inversions. In a nod to Republican concerns that corporate inversions should be addressed as part of broader tax reform legislation, Senator Schumer said that proposals to address the recent wave of corporate inversions could also be used as a bridge to comprehensive corporate tax reform.