Democratic presidential candidate Hillary Clinton is calling on Congress to stop corporations from offshore mergers that cut their tax bill, saying she'll take executive action as president, if necessary.
"The maneuvers powerful corporations are using to game the system and leave everyday taxpayers holding the bag are just offensive," Clinton said in prepared comments during a campaign stop Wednesday in Waterloo, Iowa. "Inversions by Pfizer and other companies, plus related loopholes, will cost American taxpayers more than $80 billion in revenue over the next 10 years. That's money we should be investing here at home."
Clinton called out out Pfizer (PFE) after the New York-based drug manufacturer last month unveiled a $160 billion merger with Allergan (AGN) in an acquisition that would send one of the largest U.S. corporations -- or at least its main executive offices -- to Ireland, where Allergan is based.
By decamping overseas, Pfizer could get to slash its tax rate to 5 percent, the level that Dublin-headquartered Allergan paid last year.
A key part of Clinton's proposal involves clamping down on so-called "earnings stripping," where multinational corporations shift profits overseas to countries with lower tax rates while maximizing high deductions in the U.S.
One expert on federal tax reform called Clinton's proposal to prevent earnings stripping of particular interest. "It would not just take the juice out of inversion deals but would also close the loophole that allows established foreign firms doing business in the United States to artificially shift profits out of the United States," Martin Sullivan, chief economist and contributing editor at Tax Analysts, a nonprofit provider of tax news and analysis, emailed.
The Obama administration has tried, with little success, to curb the maneuver known as an "inversion," where companies lower their corporate taxes by reorganizing in a country with a lower tax rate.
Roughly 50 U.S. companies have inverted in the past decade, with additional corporations thinking about it, according to the nonpartisan Congressional Research Service. Burger King (BKW) is among a slew of corporations that have attempted the move, with the fast-food chain last August saying it planned to acquire Tim Hortons, the Canadian coffee and doughnut chain.
In 2004, Congress attempted to contain the practice by saying U.S. companies couldn't escape U.S. taxes by merely reincorporating abroad with the same shareholders and people overseeing the company. Rather, lawmakers passed legislation saying U.S. companies would have to merge with a foreign partner, even if the foreign partner is much smaller, to become a foreign-owned corporation.
Several Democrats in Congress have announced bills to make it harder for U.S. corporations to invert, and President Obama included provisions in his 2015 budget request to curb inversions, while urging congressional action.
The Treasury Department has issued two sets of regulations intended to cut the financial windfall of inversions, with the latest coming in November. But Treasury officials have said their hands are basically tied without action by Congress.
"Our actions can only slow the pace of these transactions," Treasury Secretary Jacob Lew said. "Only legislation can decisively stop them."