On Wednesday, U.S. Sens. Dick Durbin (D-IL) and Chuck Schumer (D-NY), unveiled the text of a bill that looks to prevent tax dodges by companies that use inversions.
“Earnings stripping is a particularly shady maneuver used in the growing trend of corporate tax dodging,” said Durbin after the bill's text was released. “Families and small businesses in Illinois and across the country don’t have teams of tax lawyers to shift their tax domiciles overseas, or shift their profits and debts on or off their books, or any other shifty schemes that increase the tax burden on the rest of us. That’s wrong, and this bill will help begin to right it.”
The legislation set to be introduced by Durbin and Schumer looks to address the issue from two fronts by stopping the financial incentives for inversion and by making it so that those who have already inverted do not have a competitive advantage over other U.S. companies.
“Earnings stripping is the number one incentive driving the wave of inversions we’ve seen in recent months and we need to shut it down,” Schumer said. “This bill curtails the incentive for companies to use shady accounting gimmicks to avoid paying their U.S. tax obligations. The only way to solve this problem for good is passing legislation, and our preference is to work with our Republican colleagues to pass a strong bill.”
The bill lays out specific provisions to:
- Repeal the debt-to-equity safe harbor so that limitations on the interest expense deduction will apply to all inverters, regardless of their financial leverage;
- Reduce the permitted net interest expense to no more than 25 percent (down from 50 percent) of the subsidiary’s adjusted taxable income;
- Repeal the interest expense deduction carryforward and excess limitation carryforward so that inverters cannot take advantage of the deduction in future years; and
- Require the U.S. subsidiary to obtain IRS preapproval annually on the terms of their related-party transactions for 10 years immediately following an inversion
The legislation is con-sponsored by U.S. Sens. Sherrod Brown (D-OH), Chris Coons (D-DE), Jay Rockefeller (D-WV), Debbie Stabenow (D-MI), Ben Cardin (D-MD), Jack Reed (D-RI), Bob Menendez (D-NJ) and Edward Markey (D-MA).
Meanwhile, Durbin has also said he will no longer grab a bite to eat at Burger King due to the fast food chain's plan for a corporate inversion.
Over the August recess, Durbin opted to eat lunch at Steak 'n Shake over Burger King, Durbin said on Tuesday, reported The Hill.
On the Senate floor yesterday, the Illinois Democrat said, “I consciously decided not to stop at Burger King."
“I don’t care to do business with a company that doesn’t think it owes its fair share of taxes," he said.
Burger King plans to purchase Ontario-based Tim Hortons, a coffee and doughnut chain, and reincorporate in Canada. The move is expected to sharply curb Burger King's U.S. corporate tax bill.