Letter to House Lawmakers Opposing H.J.Res.54

The Financial Accountability and Corporate Transparency Coalition (FACT Coalition) sent a letter to House lawmakers Friday urging them to oppose H.J.Res.54, a controversial measure which would repeal an important safeguard against offshore tax haven abuse—specifically, the practice of earnings stripping. The full letter can be read below or downloaded here.

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Download Letter as PDF

February 10, 2017

Member of Congress
U.S. House of Representatives
Washington, DC 20515

RE: Oppose H.J.Res.54; Protect Taxpayers from Offshore Tax Avoidance

Dear Representative,

On behalf of the Financial Accountability and Corporate Transparency Coalition (FACT Coalition), we are writing to urge you to oppose House Joint Resolution 54 (H.J.Res.54), sponsored by Rep. Todd Rokita (R-IN).

The FACT Coalition is a non-partisan coalition of more than 100 state, national and international organizations working toward a fair and honest tax system that addresses the challenges of a global economy and promotes policies to combat the harmful impacts of corrupt financial practices.[1]

H.J.Res.54 would nullify an important measure to safeguard American taxpayers against the egregious offshore tax avoidance practices of multinational companies that renounce their American citizenship.

The Department of the Treasury and the Internal Revenue Service finalized a long-awaited measure in October on the Treatment of Certain Interests in Corporations as Stock or Indebtedness (published at 81 Fed. Reg. 72858).[2] Specifically, the rule attempts to reduce the incentive for companies to invert by addressing an abusive practice known as “earnings stripping” — whereby multinational companies load up their U.S. subsidiaries with foreign debt and charge exorbitant fees and interest on the debt in order to reduce their U.S. taxable income.

We believe that a robust implementation of this rule will help curb abusive offshore corporate tax avoidance practices, including the incentive for companies to engage in corporate inversions. The corporate tax dodging technique known as earnings stripping has undermined the honesty and fairness of our tax code by allowing multinational corporations to artificially shift income from higher to lower (or zero) tax jurisdictions. Using its broadly granted authority under Section 385, Treasury appropriately moved to restore some honesty to cross-border transactions by curbing the incentive for companies to use intercompany debt to artificially shift their income.

Earnings stripping is one of the most significant incentives behind the recent slew of inversions because it allows U.S. companies to permanently, rather than temporarily, shift income outside of the taxing jurisdiction of the United States. In addition, curbing earnings stripping will not only raise much needed revenue, but it will also level the playing field between purely domestic businesses and the multinational companies with which they compete. This is why it is so important that Congress supports Treasury’s earnings stripping action and rejects H.J.Res.54.

It is inaccurate to claim that the earnings stripping measure finalized in October amounts to regulatory overreach. Indeed, after initially proposing the rule in April, Treasury officials consulted thoroughly with stakeholders and made significant alterations to address industry concerns and minimize unintended consequences for normal businesses.[3]

The many recent, planned, and attempted inversions — such as those by Pfizer, IHS, and Johnson Controls — further demonstrate that immediate action was needed to prevent a significant erosion in the corporate tax base. In fact, analysts at Institute on Taxation and Economic Policy (ITEP) — a FACT Coalition member — estimate that Pfizer alone could have used an inversion to avoid $40 billion in taxes on the $194 billion that the company has in untaxed offshore earnings.[4]

Another recent study by Citizens for Tax Justice, U.S. PIRG Education Fund, and ITEP found that U.S. companies likely owe as much as $715 billion on the $2.5 trillion in earnings they hold offshore.[5] Given the substantial sum owed in taxes by these companies, allowing them to avoid taxes entirely through earnings stripping and related inversions could have negative implications on the tax base moving forward.

The gaming of our international tax system creates market inefficiencies; exacerbates economic inequality; drains revenue out of both developed and developing countries; hurts domestic corporations and small businesses; harms families and communities; and undermines our country’s ability to govern. As such, it is vital that Congress uphold Treasury’s sensible action to address earnings stripping by rejecting H.J.Res.54.

Thank you for your careful consideration of this matter. For more information, please feel free to contact Clark Gascoigne at cgascoigne@thefactcoalition.org.

Sincerely,

Gary Kalman
Executive Director
The FACT Coalition

Clark Gascoigne
Deputy Director
The FACT Coalition

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Footnotes:

A full list of FACT Coalition members is available at https://thefactcoalition.org/about/coalition-members-and-supporters/.
See: https://www.treasury.gov/press-center/press-releases/Pages/jl0580.aspx
See: https://www.treasury.gov/press-center/press-releases/Pages/jl0580.aspx
Richard Phillips, “How Treasury Could Take Action to Prevent Inversions,” Institute on Taxation and Economic Policy, March 23, 2016 (accessible at http://www.taxjusticeblog.org/archive/2016/03/how_treasury_could_take_action.php).
Richard Phillips, Matt Gardner, Kayla Kitson, Alexandria Robins, and Michelle Surka. “Offshore Shell Games 2016: The Use of Offshore Tax Havens by Fortune 500 Companies.” Washington, DC: Citizens for Tax Justice, Institute on Taxation and Economic Policy, and U.S. PIRG Education Fund, October 2016 (accessible at http://ctj.org/pdf/offshoreshellgames2016.pdf).

About the FACT Coalition

The Financial Accountability and Corporate Transparency (FACT) Coalition is a non-partisan alliance of more than 100 state, national, and international organizations working toward a fair tax system that addresses the challenges of a global economy and promotes policies to combat the harmful impacts of corrupt financial practices.

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