Lew: Stop firms moving abroad to dodge tax

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HONG KONG (CNNMoney) — U.S. Treasury Secretary Jack Lew is urging Congress to act to prevent U.S. companies shifting their headquarters abroad to benefit from a lower tax rate.

“Congress should enact legislation immediately — and make it retroactive to May 2014 — to shut down this abuse of our tax system,” Lew wrote in a letter to Senate Finance Committee Chairman Ron Wyden.

“We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes,” he said.

A growing number of companies are taking advantage of a process called “inversion” that allows them to relocate overseas by buying a foreign rival, provided its shareholders own more than 20% of the merged group, among other requirements.

Just this week, two U.S. drug firms — AbbVie and Mylan — have moved forward with foreign takeover plans that would allow them to pay lower tax rates. Pfizer tried a similar move earlier this year but was rebuffed by AstraZeneca management.

Lew said comprehensive reform of the U.S. corporate tax system, including a lower rate, would be the best way to tackle the problem. Meanwhile, Congress should act now to prevent even more companies “effectively renouncing their citizenship to get out of paying taxes,” he wrote.

Over the last 10 years, 47 companies have reincorporated abroad, compared to 29 over the previous two decades, according to the Congressional Research Service.

The trend has led to a growing clamor for more stringent rules. In his most recent budget, President Obama proposed making it harder for U.S. companies to leave the country by requiring that more than 50% of the merged company’s stock be held by the foreign partner.

Senator Wyden also raised this in a Wall Street Journal op-ed in May, and favors a comprehensive tax overhaul.

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1 Comment

  • TheREALByeBye2TheCorporateRITE

    Yep, this is a serious problem. Corporations move their profit centers overseas, to almost all countries who most have a LOWER corporate tax rate than we do.

    Why do they have a LOWER corporate tax rate than we do? Is it because they haver lower taxes? NO. It’s usually because they have MUCH MUCH HIGHER PERSONAL INCOME TAX RATES. So corporations move their profit centers overseas to pay the low corporate tax, yet they keep their personal residences here to profit from OUR obscenely low income tax rates on the wealthy. Overseas, corporate taxes are correctly viewed as taxes that consumers really pay, anyway (why they’re so high in America, after all), while the tax man really HITS the wealthy, as it should.

    The solution? If a corporation moves its’ headquarters or profit center overseas, then ALL the executives and investors should be considered as residents of that country, and should PAY UP the HUGE income tax rate of the country they moved to. That should take care of the problem.

    But I know already what this is leading to! A cry to lower our corporate income tax rates, while keeping our tax rates low on the wealthy. And that won’t cut it, either. We SHOULD lower our corporate income tax rates, but then RAISE our individual income tax rate on the WEALTHIEST 5% substantially to pay for it. Simple. Problem solved.

    The rich don’t like it? They can move overseas as they do with their corporate profits now! But unfortunately, they’ll pay even MORE there! As it should be.

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