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Rep. Doggett, Sen. Whitehouse Introduce Legislation to Fight Offshoring

April 5, 2017

WASHINGTON, D.C. – Today, Congressman Lloyd Doggett (D-TX), a senior Member of the House Ways and Means Committee and Ranking Member of the Tax Policy Subcommittee, introduced two bills – the Stop Tax Haven Abuse Act, joined by over 50 other Members of Congress, and the Corporate EXIT Fairness Act (Corporate Expatriates and Inverters Tax Fairness Act). These bills would: close offshore loopholes that encourage companies to shift jobs and profits offshore, curtail corporate inversions, and crack down on some of the illegal tax evasion exposed by the “Panama Papers,” one year ago this week.  

Rep. Lloyd Doggett said:

“While families work to pay their taxes before the upcoming deadline, ‘tax day’ is more aptly called ‘tax break day’ for many multinational corporations. The importance of contributing to our national security and vital public services is understood by most Americans but not by those who exploit loopholes to dodge their fair share.

“President Trump has talked a big game about getting tough on companies that move offshore, but his proposals so far would only reward tax-dodging multinationals.  

“Americans citizens who renounce their citizenship must pay an exit tax. American corporations should too. Corporations that renounce their citizenship not only invert their business operations, they pervert our tax laws. And, instead of rewarding multinationals that revel in single digit effective tax rates, I propose to shut the door on loopholes they exploit, leveling the playing field for small businesses.

Senator Whitehouse said:

“Hard working Rhode Islanders can’t use tax havens to avoid paying their taxes. Corporations and hedge fund managers shouldn’t be able to either. This bill would make the tax code fairer for American companies that play by the rules.”

The Stop Tax Haven Abuse Act would eliminate tax incentives for U.S. companies to move jobs and operations offshore, close loopholes that allow large multinationals to avoid taxes by shifting profits to offshore tax havens, and crack down on illegal tax evasion by the wealthy:

  • Under current law, a company can choose to defer paying taxes on profits, while deducting the expenses incurred to produce the profits.  The bill would require companies to delay taking deductions until they pay taxes on the related profits.  
  • Right now, companies are allowed to simply “check the box” on an IRS form and pretend that some of their foreign subsidiaries don’t exist for tax purposes.  The bill would repeal this nonsensical rule. 
  • The bill would make it easier for the IRS to obtain the names of the owners of suspicious foreign bank accounts.  It would also increase penalties for corporate insiders who fail to disclose offshore dealings.  
  • Some U.S. corporations are organized in tax havens, like the Cayman Islands, but really do business in the United States.  For instance, one modest building in the Cayman Islands, Ugland House, is the legal home of over 18,000 companies, many of them really American companies in every other sense.  This bill would discourage U.S. companies from incorporating abroad by deeming corporations worth $50 million or more that are managed and controlled in the U.S. to be U.S. taxpayers.

The Joint Committee on Taxation estimates that this bill would save tens of billions of dollars over the next decade. Click here to see a full summary of the legislation, which was introduced today in the Senate by Senator Sheldon Whitehouse.

The Corporate EXIT Fairness Act would tighten rules and take away tax incentives for corporate inversions. The bill would:

  • Apply an exit tax to any U.S. firm changing to foreign control, preventing the new foreign firm from accessing tax-free cash of U.S. subsidiary.
  • Impose an exit tax as the greater of two calculations:
    • Tax owed on accumulated deferred foreign income of the U.S. controlled foreign corporation, or
    • Tax on the appreciation in value of the U.S. controlled foreign corporation.
  • Tighten restrictions on corporate inversions, including  increasing the threshold of foreign ownership required to accomplish the inversion for tax purposes, and imposing an independent management-and-control test that may prevent other attempted inversions. If a firm does not accomplish its tax-avoiding inversion aim under these tighter thresholds, then it will continue to be taxed as an American firm. 

Both bills have been endorsed by the Financial Accountability and Corporate Transparency (FACT) Coalition, Americans for Tax Fairness, Fair Share, the Institute on Taxation and Economic Policy, the Main Street Alliance, Oxfam America, Public Citizen, U.S. PIRG, Flobal Financial Integrity, and the American Sustainable Business Council.