Measure Would Bar Inverted Corporations From Using “Earnings Stripping” To Reduce US Taxes
Congressional Democrats are again targeting the practice of corporate inversion, where a US company merges with a corporation based overseas to reduce its federal tax burden. The New York Times reports Reps. Sander Levin (D-MI) and Chris Van Hollen (D-MD), the top ranking Democrats on the House Ways and Means Committee and Budget Committee, respectively, are introducing a measure “that would seek to curtail” the practice by “blocking a company’s ability to use interest from debt payments by its American operations to its foreign parent company to offset taxes, a practice referred to as ‘earnings stripping.’” The provisions would retroactively apply “to inversions that happened after May 8, 2014,” and those in which “historical shareholders” of the US entity own more than 50% but less than 80% of “the new foreign parent.” The proposal has a partisan edge, as the Democratic lawmakers took “aim at Republican lawmakers after several attempts to get legislation through Congress in the last few years.” Levin said, “While Republicans sit on their hands, House Democrats will continue to take actions to aggressively limit tax-motivated inversions.”
What This Means For Small Businesses
The measure is unlikely to progress in the Republican-controlled Congress during an election year, but it is typical of congressional efforts that address the symptoms, rather than the cause, of dysfunctional corporate strategies that seek to minimize tax payments. Small businesses, and for that matter large corporations, would benefit from tax code reforms that cut rates, eliminate provisions that reward this type of tax avoidance strategy, and reduce the burden of compliance.
Additional Reading
The NFIB outlines its principles for tax code reforms that will benefit small businesses. In addition, NFIB has also covered the Treasury Department’s rules that seek to limit the benefits of corporate inversions.
Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.
