FACT Urges Congress to End Offshore Corporate Tax Dodging via Extenders & Inversions

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FOR IMMEDIATE RELEASE

November 10, 2014

 

FACT Urges Congress to End Offshore Corporate Tax Dodging

via Extenders & Inversions

Washington, DC – As Congress prepares to return to Washington for a post-election “lame duck” session, the FACT Coalition (Financial Accountability and Corporate Transparency) urges it to do the right thing and pass legislation to halt inversions as well as let the most egregious offshore tax extenders remain expired.

The current inversion mania started several months ago when Pfizer announced its intention to buy British drug maker AstraZeneca and relocate its headquarters, if only on paper, to the United Kingdom.  The Treasury Department announced new rules designed to stem the tide of inversions, and have been somewhat successful.  In fact, when the AbbVie-Shire deal was called off, the Treasury rules were cited as the reason why.  However, real reform will not happen without congressional action and that responsibility now falls on our returning lawmakers.

Congress must also address tax extenders, a set of 54 temporary tax breaks, which are ostensibly designed to stimulate the economy and encourage business investment.  These extenders usually last for a year or two, and the last set expired at the end of 2013.  Although the Senate Finance Committee passed another two-year extension, the full House voted to make them permanent.

In reality, however, the extenders are specialized loopholes for everything from thoroughbred racing to NASCAR tracks.  Two of the most egregious loopholes allow U.S. multinationals to avoid U.S. taxes on their profits by making it appear as though they were generated offshore.

The first is what is known as the CFC Look-Through Rule, which allows corporations to create “stateless income” by treating income, at least for tax purposes, as having been earned in a low or no-tax country where the company has no employees, no operations, and no real economic activity taking place.  Instead, most of the places contain only a mailbox.

The Active Financing Exception is the second offshore loophole.  While passive income (interest, dividends, royalties, etc.) is meant to be taxable even if it is kept offshore, the Active Financing Exception allows multinationals to make it appear as though it was generated in foreign subsidiaries, providing another way in which they manipulate their tax bills and thus avoid paying their taxes.

“The active financing exception is the primary reason General Electric and the big banks pay so little in U.S. tax,” said Rebecca Wilkins, Senior Counsel, Federal Tax Policy at Citizens for Tax Justice. The CFC look-through rule allows multinational corporations with high-value intangible assets, like Google and Pfizer to shift profits out of the U.S. and other countries where the income is actually generated. It’s time for Congress to quit facilitating this offshore tax dodging.”

“Once again Congress has an opportunity to act, and to act in the best interests of the American people, small businesses, and domestic companies all of whom are being harmed by inversions and these tax extenders.” Said Nick Jacobs, communications director for the FACT Coalition.  “The American people have delivered a message that they don’t like where the country is headed, which is a place where corporations can avoid taxes.  The question now is whether Congress will listen and take appropriate action.”

“When this country loses $150 billion every year due to tax haven abuse, there is no excuse for Congress not to pass meaningful legislation,” said Jaimie Woo, Tax and Budget Associate for U.S. PIRG. “There isn’t a lack of proposals on the table to curb inversions, and members from both parties have agreed that the offshore tax extenders are harmful for ordinary citizens and small business owners. The next three weeks are critical – and Congress can accomplish a lot on corporate tax avoidance before the next term.”

“Election Day exit polls consistently showed that a plurality of Americans think the most important issue we face is growing the economy,” said Meredith Small, Program Director for Fair Share. “The problem is that when corporations are allowed to legally dodge paying their fair share of taxes, it makes it more difficult for our nation to build our economy through job creation. We are sending revenue overseas that we could be using to feed hungry children, expand pre-K education and invest in good, healthy infrastructure jobs for the future.”

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Media Contact:

Nick Jacobs

FACT Coalition

njacobs@nullthefactcoalition.org

202-841-1466

 

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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 legitimate financial system.