While Democrats in Congress continue to seek a legislative solution
to the 'corporate inversion problem' after the summer recess, United States President
Barack Obama has confirmed his intention in the meantime to act quickly by utilizing his administrative
Answering questions at a press conference after
the US-Africa Leaders Summit, Obama confirmed that he is looking to
take whatever measures he can, while awaiting congressional action, to reduce
tax benefits for inversions.
He said: "We don't want companies who have up until now been
playing by the rules suddenly looking over their shoulder and saying, you know
what, some of our competitors are gaming the system and we need to do it, too.
That kind of herd mentality I think is something we want to avoid. So we want
to move quickly – as quickly as possible."
"My preference would always be for us to go ahead and get something
done in Congress... So there is legislation working its way through Congress that would eliminate some of these tax loopholes entirely. And it's true what Treasury Secretary Lew previously said, that we can't solve the entire problem administratively. But what we are doing is examining: Are there elements to how existing statutes are interpreted by rule or by regulation or tradition or practice that can at least discourage some of the folks who may be trying to take advantage of this loophole?"
Democrats, seeking a bipartisan package of measures in the Senate, have put forward proposals that have concentrated on increasing
the minimum foreign shareholding cap to require that at least 50 percent of a US company's shares are held by the foreign company's shareholders after a merger, up from 20 percent currently, in order for the combined entity to be allowed to move away from America's 35 percent corporate income tax rate.
There have also been proposals to include more stringent rules governing
the deduction of interest expense and the inclusion of management and control
provisions in a new definition of an inverted company.
On the other hand, Republican lawmakers' preference continues to be to expedite comprehensive tax reform, to lower the corporate tax rate and to introduce a more internationally
competitive tax code. Although concerned by a spate of inversions, they believe
that the proposed short-term fixes would be "punitive" and
could have unintended consequences.
The efforts of Senate Finance Committee Chairman
Ron Wyden (D – Oregon), to "build a bipartisan coalition to pursue
immediate legislation to stop the inversion virus," therefore, look set to
Corporate tax reform is the only "right choice," according to
the House of Representatives Speaker, John Boehner (R – Ohio), who recently asked the President not to use his executive
powers unilaterally in an op-ed in Politico. "Such a move sounds politically appealing," he
wrote, "but anything truly effective would exceed his executive authority.
The president cannot simply re-write the tax code himself."