One Way to Limit Inversions: Limit Earnings Stripping by Inverted Companies

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FOR IMMEDIATE RELEASE

September 10, 2014

 

One Way to Limit Inversions:

Limit Earnings Stripping by Inverted Companies

FACT Applauds Schumer-Durbin Bill as Step Forward to

Address Inversions and Tax Dodging

 

Washington, DC – The FACT (Financial Accountability and Corporate Transparency) Coalition applauds the introduction of legislation that would be a helpful step towards tax fairness if enacted along with the Stop Corporate Inversions Act, which was introduced in the House and Senate in May.

The bill, introduced by Senator Charles Schumer (D-NY) and Senator Richard Durbin (D-IL), would among other changes, limit futureinterest deductions for inverted companies to 25 percent of revenue, down from the current limit of 50 percent.

This would prevent inverted corporations from engaging in earnings stripping, in which a company borrows money from its foreign parent company and deducts the interest payments on the loan from its U.S. profits, sometimes even wiping out any U.S. income for tax purposes.  This maneuver is nothing more than an accounting trick, shifting money from one part of the same conglomerate to another.

By limiting the ability of inverted firms to engage in this particular tax dodge, the legislation makes future inversions less attractive to companies.

“Not only will this bill ultimately limit inversions, it also recognizes that earnings stripping is just one part of the much bigger problem,” said Nick Jacobs, Communications Director for the FACT Coalition.  “Congress needs to build on this progress and act now to halt practices such as earnings stripping and profit shifting.”

“Members of Congress have shown tremendous support in the effort to curb inversions and prohibit companies from taking advantage of tax loopholes, and this bill represents another step forward as an addition to many current proposals,” said Jaimie Woo, Tax and Budget Associate for U.S. Public Interest Research Group. “I look forward to more comprehensive action that tackles the root of inversions and corporate tax avoidance.”

 

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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.