WASHINGTON, DC – U.S. Senator Jack Reed today applauded a series of actions announced by the U.S. Treasury Department aimed at curbing a practice known as “inversion,” in which U.S. companies move their headquarters overseas, but only on paper, in order to avoid paying U.S. taxes.  Through legislation and direct appeals to the Treasury Department, Reed has been working to close the inversion loophole to protect American taxpayers and businesses that pay their fair share of taxes.

The U.S. Treasury Department on Thursday announced the new rules designed to make it more difficult for U.S. corporations to cut their tax bills by reincorporating overseas.  The new restrictions strengthen existing rules imposed in September 2014 that were already on the books, but have continued to be exploited.

“This is an issue of simple economic fairness, and I applaud the Treasury Department for taking action to address this practice of corporate greed and tax evasion known as inversion.  This corporate shell game allows some companies to shift their address abroad for tax purposes while remaining in the United States, benefitting from our workforce, research and innovation infrastructure, and education system, but shifting their tax burden to the American taxpayers.  Middle-class families and small Main Street businesses don’t have that option when tax season comes around.  Ending inversions will help protect American taxpayers and American jobs,” said Senator Reed.  “These steps by Treasury are a significant step in the right direction, but the best long-term solution is legislation that ends this practice once and for all.”

The new restrictions unveiled Thursday by the Treasury Department will limit the ability of U.S. companies to combine with foreign firms when the new overseas parent is a tax resident of a third country.  The rules also make it harder for companies to inflate the size of the new foreign parent company in an effort to avoid what is known as the “80 percent rule,” a requirement that the former owners of a U.S. company own less than 80 percent of the new combined entity.  The actions taken by the Treasury Department would also limit the actual tax benefits of inversions, in an effort to make the transactions less attractive to companies considering exploiting the loophole.

A surge of inversion announcements last year led Democrats in the Senate and House to introduce several different measures to stem the tide.  Republicans in both chambers refused to support the legislation even though similar measures received bipartisan support in the past.  In 2004, a Republican-controlled House and Senate changed the tax code to discourage U.S. companies from acquiring smaller foreign companies and moving their tax home to a foreign jurisdiction as part of the overall transaction.  In the last 10 years, more than 40 U.S. corporations have found a loophole in this law and have exploited it to pad their bottom line.

Senator Reed was joined by Senators Dick Durbin (D-IL) and Elizabeth Warren (D-MA) in September in calling on the Treasury Department to take additional executive action to curb inversions after legislative attempts had been blocked.  In January, Reed and several of his colleagues in the Senate and House reintroduced the Stop Corporate Inversion Act, which would amend the tax code to prevent U.S. companies to from moving their tax domicile overseas in order to evade U.S. taxes.  In April, Reed and six of his colleagues introduced the American Business for American Companies Act, which would ban federal contracts for companies that move their headquarters overseas through inversion.

According to the bipartisan Joint Committee on Taxation, inversions could cause the United States to lose about $20 billion in tax revenue over the next decade.  While “inverted” companies incorporate overseas, they remain majority-owned by shareholders of the old U.S. corporation and do not have substantial business activities in the foreign country in which they are incorporating.

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