Bill To End Company Tax Dodge Moves

By Steven Brostoff, Washington Editor

NU Online News Service, June 19, 4:15 p.m.EST?-The Senate Finance Committee has approved legislationaimed at preventing a much-publicized method used by some U.S.corporations to avoid U.S. taxes.

The legislation, S. 2119, seeks to stop U.S. corporations frommoving their corporate charters to Bermuda and other low taxjurisdictions outside the U.S., a process known as corporateinversions.

The legislation, which is co-sponsored by Finance CommitteeChairman Max Baucus, D-Mont., and Ranking Republican ChuckGrassley, R-Iowa, was passed by a voice vote.

The legislation applies only to companies that seek to renouncetheir U.S. citizenship. The legislation does not apply to companiesthat originated in so-called tax havens.

Under S. 2119, two types of inversions are addressed.

A pure inversion is defined as one in which a U.S. companybecomes the subsidiary of a foreign corporation or transferssubstantially all of its properties to a foreign corporation.

In addition, the shareholders of the U.S. corporation receive 80percent or more of the vote or value of the foreign corporationimmediately and the foreign corporation does not have substantialbusiness activities in the country of incorporation.

For this type of inversion, the new foreign parent would bedeemed a domestic corporation for U.S. tax purposes.

A limited inversion is defined as one that is similar to a pureinversion, except that the shareholders of the U.S. corporation endup with more than 50 percent but less than 80 percent of the stockof the foreign corporation.

For this type of inversion, the tax imposed on the untaxedearnings and appreciation in value of foreign properties could notbe reduced by any corporate tax credit or other means.

In addition, limited inversion structures would be monitored toassure that income cannot be stripped out of the U.S. corporationthrough transactions with foreign related parties.

Sen. Grassley said the legislation is aimed at assuringfairness. "The average individual taxpayer can't skip out on histax bill," he said. "He doesn't have the luxury of setting up afiling cabinet and a mail box overseas to escape his federal taxes.The same should be true for corporations."