Corporate Fair Share Tax Act Would Deter Multinationals from Renouncing American Citizenship to Avoid Paying Taxes
Putting America First Corporate Tax Act Would End Loophole Enabling Largest Companies to Indefinitely “Defer” Paying Taxes on Offshore Profits
WASHINGTON, DC – The FACT (Financial Accountability and Corporate Transparency) Coalition welcomed the introduction of two pieces of legislation by Representative Mark Pocan (D-WI) to close corporate tax loopholes costing U.S. taxpayers hundreds of billions of dollars.
The Corporate Fair Share Tax Act (H.R.3934) and the Putting America First Corporate Tax Act (H.R.3935) show a concerted effort by some in Congress to combat corporate tax avoidance by confronting a major incentive for corporate inversions and by ending a policy that enables multinational corporations to indefinitely defer paying taxes on their overseas profits.
“While large multinational corporations are making record profits, many of them take advantage of a tax code riddled with loopholes that helps them winnow their tax bills down significantly, often paying nothing at all,” said Rebecca J. Wilkins, executive director of the FACT Coalition. “The two pieces of legislation include commonsense measures to close some of the most egregious offshore tax loopholes.”
Corporate Fair Share Tax Act
First, the Corporate Fair Share Tax Act would help end the infamous practice of tax inversions, a process by which U.S.-based multinational companies claim to be a foreign corporation on paper in order to avoid paying U.S. taxes. A loophole in the tax laws allows this to happen when an American corporation merges with a (usually smaller) foreign corporation.
The key incentive for a company to invert is the ability of the company to engage in an accounting gimmick called “earnings stripping.” Under this process, companies avoid U.S. taxes by having the U.S. affiliate company borrow money from its foreign parent, to which it makes large interest payments that have the effect of wiping out U.S. income for tax purposes. The loan is really an accounting gimmick, since all the “corporations” involved are really elements of one company that is simply shifting money from one subsidiary in a high-tax nation to another subsidiary in a low-tax nation. To solve this tax avoidance scheme, the Corporate Fair Share Tax Act would disallow the deduction of excessive interest payments by the U.S. subsidiary.
Putting America First Corporate Tax Act
Second, the Putting America First Corporate Tax Act would end a major incentive for shifting profits overseas, tax deferral on foreign profits.
In theory, the U.S. taxes all the profits of American corporations, including profits earned by their offshore subsidiaries. In practice, U.S. corporations are allowed to defer paying U.S. tax until these profits are officially brought to the U.S., which in some cases never happens. As a result of deferral, companies have an incentive to shift their U.S. profits to their offshore subsidiaries in order to avoid U.S. taxes. This bill would end that incentive by taxing all of a company’s income at the same time and the same rate, after providing an offset for all taxes paid on the income to foreign jurisdictions.
The FACT Coalition notes that ending tax deferrals on foreign profits and restricting “earnings stripping” would only be fair, and would certainly discourage inversions and tax avoidance.
“The companies pursuing corporate inversions are among the worst of the tax dodgers,” added Ms. Wilkins, FACT’s Executive Director. “They have shifted billions of dollars in profits from the U.S. and other countries where they actually do business into offshore tax havens where they only have a mailbox. It’s especially offensive for these companies to be moving the profits that were made possible by American tax incentives like the research and development credit, by physical and scientific infrastructure in the States, by the U.S. patent office, and by the U.S. court system where they defend those patents. American taxpayers paid for these important things and now these companies are turning their backs on the country that made their success possible. It’s time for Congress to end this abuse.”
“Large corporations need to be held accountable to the communities they serve. Moving your business to offshore tax havens or shifting your profits artificially overseas betrays the people who work hard to keep our economy on the right path and leaves small business owners and community members footing the bill for local infrastructure,” said Andrew Lytle, owner of Receptor Sound & Lighting in Dunedin, FL and a member of the Main Street Alliance.
“Taxes pay for the essential assets of a modern economy, like infrastructure, public safety, and a fair and impartial legal system. When large corporations leverage the tax code to avoid paying their share, we all lose,” said David Levine, CEO of the American Sustainable Business Council. “Representative Pocan’s bills are sensible tax policy that will level the playing field for businesses who can’t take advantage of these tax loopholes, and ultimately contribute to building a sustainable economy.”
“For far too long, these loopholes have allowed wealthy individuals and large multinational companies to avoid the taxes they should be paying,” said Scott Klinger, Director of Revenue and Spending Policies at the Center for Effective Government. “Congress should pass these measures immediately to stop this egregious tax dodging and to restore fairness to our tax system.”
“We have to act quickly and decisively to stem the wave of inversions,” said Nathan Proctor, National Campaign Director with Fair Share. “We can’t let big corporations continue to dodge taxes just because they can afford high-paid tax lawyers who run these complicated schemes — everyone should play by the same rules.”
“Eliminating the rigged rules that privilege huge multinational companies over ordinary citizens is one critical step to stemming the growth in inequality. When big companies dodge taxes, we all foot the bill. Congress must urgently pass legislation to close tax loopholes and make corporations pay their fair share,” said Gawain Kripke, Director of Policy and Research for Oxfam America.
“When corporations avoid paying taxes, they avoid their responsibility to contribute to the communities where they operate,” said Eric LeCompte, Executive Director of the religious development agency Jubilee USA Network.
Notes to Editors:
- Click here to read an HTML version of this press release on our website.
- Click here to read the press release from Rep. Mark Pocan on the bills.
- Click here to download the full text of the Corporate Fair Share Tax Act (H.R.3934).
- Click here to download the full text of the Putting America First Corporate Tax Act (H.R.3935).
+1 (202) 683-4833
Founded in 2011, the Financial Accountability and Corporate Transparency (FACT) Coalition unites civil society representatives from small business, labor, government watchdog, faith-based, human rights, anti-corruption, public-interest, and international development organizations. We seek an honest and fair corporate tax code, greater transparency in corporate ownership and operations, and commonsense policies to combat the facilitation of money laundering and other criminal activity by the financial system. For more information, visit www.thefactcoalition.org