The U.S. Chamber of Commerce filed suit Thursday against the federal government for allegedly changing the IRS tax code after Congress rejected President Barack Obama’s proposed changes.
Filed in the U.S. District Court for the Western District of Texas, the lawsuit originates from regulations issued by the Treasury to thwart a merger between Pfizer Inc. and Allergen that would have relocated the companies to the tax haven of Ireland. Ireland, which has one of the lowest corporate tax rates in the world at 12.5 percent, has been a safe haven for companies like Facebook and Apple.
The Treasury proposed new regulations in early April to curb “the benefits of and limit the number of corporate tax inversions, including by addressing earnings stripping,” according to a statement from the U.S. Department of the Treasury.
The merger would have saved Pfizer some $35 billion in taxes, reports the Washington Post.
Thomas Donahue, president of the Chamber of Commerce, suggested that this is not the way government is supposed to work, saying, “instead of breaking the rules to punish companies engaged in lawful transactions, Washington should just do its job and comprehensively reform the tax code,” reports the Wall Street Journal.
The Treasury Department retorted in a statement, saying, “we will continue to defend these regulations, which will help slow the erosion of our corporate tax base.”
Edward Kleinbard, a law professor at the University of Southern California, said that “I would be quite surprised if this case survived the obvious defense by the Justice Department that this is an attempt to short-circuit the regular course of tax collections,” according to Reuters.
The United States has the third highest corporate tax rate among the 35 most developed nations in the world. The business community, along with the Department of Commerce, argue that these corporations are acting appropriately given the burdensome corporate tax rate in the United States.
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