Treasury Dept. Tries Again To Stop Companies From Giving Up U.S. Citizenship For Lower Taxes

[Purveyor]

Source: Washington Post

By Renae Merle April 4 at 6:09 PM

The Treasury Department on Monday took aim at U.S. companies moving their headquarters overseas to lower their tax bills, issuing aggressive new rules intended to make such moves less profitable and throwing a potential wrench into Pfizer’s recent merger plans.

This is the third round of rules the Obama administration has issued over the last two years to stop the flow so-called inversions, in which U.S. companies are bought by or merge with foreign firms to reduce U.S. corporate tax burdens.

The department’s latest batch of rules would make more difficult a practice known as “earnings stripping” that enables companies to lower their taxable U.S. profits. Using this strategy, the U.S. subsidiary of the inverted company can take on a loan from its foreign parent company. The interest payments on that debt can then be deducted from the U.S. company’s taxable income.

Earnings stipping is typically one of the most attractive parts of an inversion and the Treasury Department wants to make the process more onerous.

Read more: https://www.washingtonpost.com/news/business/wp/2016/04/04/treasury-dept-tries-again-to-stop-companies-from-giving-up-u-s-citizenship-for-lower-taxes/

[Warpy]

1. Congress will have to regulate this stuff and enact taxes on foreign companies doing business here

For that, we'll have to manage to clear out the conservative dead wood in both parties.

[debunction.junction]

23. is it time to bring back Tariffs!

The best way to reduce the incentives for corporations moving off shore is to impose TARIFFS on the products they bring back into the United States.

Most Americans have no idea that Tariffs funded up to 95% of the Federal Government from 1789 until 1913 when the Federal Income tax was imposed. If they do not want to pay their Federal Income taxed, fine. They can pay tariffs "before their goods can be landed." Impose tariffs and reduce my taxes!

The Democrats argued against tariffs because they felt it would raise the price of the goods, and thereby hurt the consumer. That argument today is bogus and no longer applies. Consumer prices today are no longer driven by the cost of goods production with a fair and reasonable profit margin. Corporate greed had taken over, the consumer be damned.

"The 1st United States Congress, wanting a straightforward tax that was not too onerous and easy to collect, passed the Tariff Act of 1789. Treasury agents collected the tariff before goods could be landed, and what became the Coast Guard prevented smuggling. Tariffs were the largest (95% at times) source of federal revenue until the Federal income tax began after 1913. For well over a century the federal government was largely financed by tariffs averaging about 20% on foreign imports."

The goal of using higher tariffs to promote industrialization was urged by the first Secretary of the Treasury, Alexander Hamilton. They generally failed because Jeffersonian and Jacksonian Democrats said the tariff should be only high enough to pay the government's bills; otherwise, it would hurt the consumers. The Republicans, however, made high tariffs the centerpiece of their economic policy beginning in 1861, and as late as 1930. Since 1930, tariffs have not been a major political issue.

https://en.wikipedia.org/wiki/Tariffs_in_United_States_history

[Cheese Sandwich]

25. No just make it illegal for them to move. Just seize their assets.

Convert them to public companies or hand them over to the employees to run as cooperatives.

That's a hell of a lot easier than trying to create incentives for them to stay. It would also have the additional benefit of stopping the horrible influence some of these companies are having by influencing the government with bribes and donations.

[Scuba]

29. Bingo!

[debunction.junction]

30. I could go for that

[AgerolanAmerican]

2. US has highest corp tax rate in the world

A lot of people are surprised to learn that, but that's why companies are fleeing the jurisdiction.

And the reason the rate is so high is because many of the corps that SHOULD be the biggest taxpayers are also the biggest lobbyists and have created a labyrinthine tax code that privileges them to an extreme (I think FB "paid" something like negative $6 billion, and quite a few other massive corps pay nothing at all).

The code needs to be radically simplified to be fair to those who haven't the resources to buy legislation, which in turn could help bring the tax rate down while remaining revenue-neutral, and remove a lot of the incentive for these tax emigrant companies to leave.

[Vincardog]

5. You cannot reduce taxes enough to fix corporate greed.

[AgerolanAmerican]

7. no you can't, but

You can change the outcome of the greed by changing the incentives - right now the incentives are find to ANY other country to set up shop in.

And the greediest ones of all are the ones paying no taxes because they purchased exemptions through lobbying and getting privileges written into the tax code. It's only the ones who try to play fair who really bear the burden.

[1StrongBlackMan]

6. This is a misnomer ...

while the U.S.' legislated corporate tax rate is among the highest, the effective rate is more towards the lower middle.

[AgerolanAmerican]

9. yeah the lobbying kills tax revenue for the largest corps

The tax code is so ridiculously complex - intentionally so - that all the largest corps have dedicated departments specifically intended to reduce the tax burden. The GE tax division is famously one of the prime landing spots for corporate tax lawyers, and they often pay $0.

But smaller companies who can't afford to sport such a division get reamed. It's exactly the opposite of how it should be - smaller companies should have less burden and larger ones more.

[1StrongBlackMan]

11. No ... But even Mom and Pops don't pay the legislated rate ...

if they have a moderately competent tax accountant.

[saturnsring]

16. corporations use our services which arent cheap - our navy guards their trade routes

intellectual property is guarded they use our courts these things are expensive

[Justice]

27. Many large US companies pay very little actual tax

So odd to mention tax rates but not fact effective rates are much lower.

[Yo_Mama]

31. Yes, and the situation has been getting slowly worse. The Scandinavian high-tax dem/socialist

countries Sanders admires have very high personal taxes and lower corporate taxes by far than we do.

We need to at least level the playing field before we are really going to be able to control this.

[GoneFishin]

3. Re-institute tariffs. If they want to leave then fuck'em. Correctly weighted tariffs will either

convince them to keep the jobs here, or allow their competitors who continue to employ U.S. workers to compete on an even playing field.

[1StrongBlackMan]

8. The vast majority of the companies being discussed are merely changing ...

their domicile address ... they are not leaving the U.S.

[GoneFishin]

12. Oh. I see. Different topic.

[anigbrowl]

17. Tariffs generally don't work and hurt consumers

I'm European, grew up long before the Euro was introduced and when EU economies were much more protectionist than today. Recessions and unemployment were a perennial problem despite governments slapping tariffs on things left and right. They are simply not the magic economic bullet that some people imagine they are.

The only time tariffs make sense are when another country is engaged in dumping goods far below the cost of production or in complete disregard of safety standards, so as to dominate the market by driving competitors out of business. Outside of those circumstances they are economically terrible.

I don't really know how to explain this succinctly without going into an economics lecture which most people here will just ignore because most people on DU seem allergic to studying economics, but I can tell you that my experience of growing up with them was negative. People will not give up buying foreign goods with tariffs on their import if those goods are what they really want, they'll just spend less on domestic goods in order to be able to afford the higher-priced import.

[AdHocSolver]

24. It is very difficult finding American-made products any more.

I prefer buying American-made products as my experience has been that they are usually better made than imported stuff coming from low wage countries.

It is also the case that the price difference between American-made products and goods imported from China, India, Mexico, or Vietnam are minimal or the American-made product is actually less expensive. The lower manufacturing cost of imports is often NOT passed along to the American consumer.

Most people have no idea about what the cost of manufacturing a product is and assume incorrectly that the imported product is always cheaper than the American-made product. The markup on many imported goods can be enormous.

Americans who can afford to pay a premium for over-priced imported products won't be affected by tariffs that are designed to protect American jobs. Tariffs can be designed to discourage large multinational corporations from benefiting from using their economic clout to prevent smaller American companies from competing against them by manufacturing in the U.S.

[anigbrowl]

33. I don't find it so

And I certainly prefer buying American-made products for may things because I care about them being made to meaningful health/safety/environmental standards. I don't want to save money at the expense of adding to exploitation or pollution somewhere else - and where foreign goods are produced in total disregard of such things, I consider tariffs quite appropriate and economically sound.

On the other hand I have little confidence in them as a job-protection measure absent other factors, eg I would never support a tariff on goods imported from Europe (where safety and environmental standards typically meet or exceed US requirements).

[GoneFishin]

26. History of U.S. labor, revenue numbers into the US Treasury from tariffs, and US imports vs. exports

make it unnecessary to guess.

It doesn't have to be magic. It just needs to slow or reverse the marching of the U.S. workforce over the cliff.

[anigbrowl]

32. I simply do not expect them to do what you hope they will

Nut then we probably disagree on the nature and origin of the problems facing the US economy/workforce to begin with.

[houston16revival]

4. Tax Capital Flight at 80%

Problem solved.

[anigbrowl]

18. That will have no effect on profits earned overseas

Capital flight isn't even relevant here. Introducing it suggests you do not understand the issue.

[houston16revival]

19. It is you who do not understand very much at all

Characterizing inversions as a re-regististration of the capital assets of the corporation
- physical and financial - under foreign ownership would subject all of it to a confiscatory tax.

[anigbrowl]

21. I understand just fine

Your proposal is irrational because you think the US has a prior economic claim on monies earned overseas by corporate subsidiaries. This is simply not the case.

[anigbrowl]

20. Capital flight isn't the issue here

I don't think you understand what a corporate inversion is. The capital isn't leaving the US, it was earned elsewhere and the owners are choosing not to bring it back into the US, which is perfectly legal.

If you go to work in Country X and open a bank account there to deposit your earnings, as long as you pay all applicable taxes then you are perfectly within your rights to leave your money in the foreign bank instead of transferring it into your US back account after you return home.

[houston16revival]

22. You are entitled to your distorted opinion

whatever it means

I am placing you on full ignore

Please leave me alone

[SwankyXomb]

10. In addition to some of the punitive measures discussed above

I suggest stripping them of all government contracts.

[IthinkThereforeIAM]

14. For years...

... I have said that any company moving headquarters or domicile address to another country, should be knocked way down to the bottom rung on the ladder of corporations that can bid on government contracts. It is a national security issue.

[TryLogic]

13. I think a carbon tax would be helpful... A tax on manufactured items entering the US regardless

of where they are made and based on the amount of carbon produced during acquisition of raw materials, manufacture of product, and transportation of product.

[hollysmom]

15. don't fix the sidewalks or streets in front of their businesses?

ior deport the CEO's?
I don't know if e can win as long as the tax system rewards their behavior.

[titaniumsalute]

28. So these assholes love the US so much

that they move their taxes out. Treason!

They enjoy the safety of having the world's most powerful military. They visit our National Parks on vacation. They drive on the Interstates. Meh. Fuck these people.