Obama weighing options to stop corporate tax flight

Move comes as more companies seek ways to reduce the amount of U.S. taxes they pay on income earned abroad

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WASHINGTON — The Obama ad­min­is­tra­tion is weigh­ing plans to cir­cum­vent Con­gress and act on its own to cur­tail tax ben­e­fits for U.S. com­pa­nies that re­lo­cate over­seas to lower their tax bills, seek­ing to stanch a re­cent wave of so-called cor­po­rate in­ver­sions, Trea­sury Sec­re­tary Ja­cob J. Lew said Tues­day.

Trea­sury Depart­ment of­fi­cials are rush­ing to as­sem­ble a broad ar­ray of op­tions that would “change the eco­nom­ics of in­ver­sions,” Mr. Lew said. Op­tions are still be­ing de­vel­oped, al­though no fi­nal de­ci­sion has been made about whether to go for­ward with ad­min­is­tra­tive ac­tion to strip away tax in­cen­tives for the deals.

The ac­tion comes in the face of a re­cent in­crease in U.S. com­pa­nies reach­ing deals to re­or­ga­nize over­seas, cre­at­ing an ex­plo­sive po­lit­i­cal is­sue that Mr. Obama has seized upon to talk about a lack of “eco­nomic pa­tri­o­tism.” In­vest­ment banks have been coun­sel­ing com­pa­nies to pur­sue such trans­ac­tions be­cause of the po­ten­tial tax ben­e­fits.

Two large U.S. phar­ma­ceu­ti­cal com­pa­nies — the Pitts­burgh-based ge­neric man­u­fac­turer My­lan and the drug gi­ant Ab­bVie, based in Il­li­nois — agreed to such deals last month, and Wal­green, the drug­store chain owner, is con­sid­er­ing one.

“Time is of the es­sence,” Mr. Lew said in an in­ter­view. “We are look­ing at a very long list of pos­si­ble ways to ad­dress the is­sue.”

It would be the lat­est move by the Obama ad­min­is­tra­tion to side­step con­gres­sio­nal grid­lock and move on a top do­mes­tic pri­or­ity. The pres­i­dent in­cluded a pro­vi­sion in his bud­get pro­posal this year that would have ef­fec­tively banned in­ver­sions, and Demo­cratic law­mak­ers have in­tro­duced leg­is­la­tion to halt or sus­pend them. Still, while some Re­pub­li­cans say they want to ad­dress the is­sue, there has been lit­tle bi­par­ti­san agree­ment about how to do so.

While Mr. Lew said he be­lieved that leg­is­la­tion was the “best solu­tion” for ad­dress­ing the is­sue, the re­cent flood of in­ver­sions has per­suaded Mr. Obama’s team that quicker ac­tion may be nec­es­sary. “If we have to wait for what is the likely pe­riod of time be­fore busi­ness tax re­form can be en­acted,” he said, “I think we’re all go­ing to re­gret the num­ber of in­ver­sions that have oc­curred in the in­terim.”

Merely by sig­nal­ing the pos­si­ble ac­tion, Mr. Lew seemed to be work­ing to in­flu­ence com­pa­nies that might be con­sid­er­ing an in­ver­sion to re­con­sider. “My goal is ac­tu­ally to change what’s hap­pen­ing out there,” he said. “Put­ting com­pa­nies on no­tice is, I think, part of it.”

On Tues­day morn­ing, a group of Demo­cratic Senate lead­ers called upon Mr. Obama to go around Con­gress and act on his own to cur­tail tax ben­e­fits for U.S. com­pa­nies that re­lo­cate over­seas, warn­ing that bil­lions of dol­lars in tax rev­e­nue can be lost if he fails to act. “The com­ing flood of cor­po­rate in­ver­sions jus­ti­fies im­me­di­ate ex­ec­u­tive ac­tion,” says the let­ter, spear­headed by Il­li­nois Sen. Rich­ard Durbin, the cham­ber’s No. 2 Dem­o­crat, and signed by Sens. Eliz­a­beth War­ren of Mas­sa­chu­setts and Jack Reed of Rhode Island.

If Mr. Obama de­cided to act, there could be at least some ret­ro­ac­tive ef­fect be­cause he could place new lim­its on the trans­ac­tions of in­verted com­pa­nies. In­ver­sions could still go through, but de­pend­ing on when new rules were is­sued, the tax strat­e­gies that made the merg­ers seem lu­cra­tive might be se­verely lim­ited.

Mr. Lew said at a con­fer­ence in New York last month that he did not be­lieve that he had the power to act alone on the is­sue. But Mr. Obama re­cently de­liv­ered a speech de­cry­ing in­ver­sions, and ad­min­is­tra­tion of­fi­cials had been eval­u­at­ing the le­gal­ity of uni­lat­er­ally lim­it­ing them.

Mr. Lew wrote to law­mak­ers last month urg­ing them to take ac­tion on the is­sue, and soon af­ter, the pres­i­dent made “eco­nomic pa­tri­o­tism” a cen­ter­piece of a Los An­ge­les speech. “I don’t care if it’s le­gal. It’s wrong,” the pres­i­dent said of in­ver­sions at the time. “You shouldn’t get to call your­self an Amer­i­can com­pany only when you want a hand­out from the Amer­i­can tax­pay­ers.”

Just days af­ter the pres­i­dent raised the is­sue pub­licly, Ste­phen Shay, a for­mer Obama ad­min­is­tra­tion Trea­sury Depart­ment of­fi­cial who now teaches at Har­vard Law School, sug­gested in a much-dis­cussed ar­ti­cle in the trade jour­nal Tax Notes that it was within Mr. Obama’s power to act alone on the mat­ter. “I’m re­ally con­cerned that we are los­ing a sig­nifi­cant por­tion of our cor­po­rate tax base that you’re not go­ing to get back,” Mr. Shay said in an in­ter­view.

United States - North America - United States government - United States Congress - U.S. Department of the Treasury - United States Senate - Elizabeth Warren - Jacob Lew - Charles Schumer - Jack Reed


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