Treasury Secretary Jacob Lew said in a speech at the Urban Institute on Monday that he would decide “in the very near future” whether to take steps to discourage companies from moving their headquarters overseas to avoid paying U.S. taxes on their foreign earnings.
This practice is known as corporate inversion.
Several companies, including Burger King and pharmaceutical company AbbVie, have completed inversion deals in recent months, and many others are considering similar moves. (RELATED: Warren Buffett Bucks Democrats in Burger King Deal)
However, Lew also emphasized that, “any action we take will have a strong legal and policy basis, but will not be a substitute for meaningful legislation.”
The best solution, he said, would be for Congress to pass legislation that would make inversion harder for companies while also reforming the tax code to incentivize companies to stay in the U.S. In order to prevent companies from scrambling to finalize inversion deals while the bill is being debated, though, Lew said the “legislation should work retroactively, applying to any deal after early May of this year.” (RELATED: Punitive Action and Public Shaming Will Not Stop Corporate Inversions)
Lew’s statements seemed to encourage compromise, suggesting that ideas from both parties be incorporated.
Michigan Democratic Sen. Carl Levin proposed legislation in May that would treat corporations as domestic for tax purposes if at least 50 percent of stockholders are American, or if at least 25 percent of the company’s sales, employees, or assets are located in the U.S. Levin’s bill would also be retroactive to May 8, 2014. (RELATED: Democrats Want to Deny Federal Contracts to Companies that Relocate Overseas)
Republicans, on the other hand, have claimed that corporate inversions are a natural response to the fact that the U.S. is the only country in the world that taxes domestic companies on foreign earnings. They advocate reforming the corporate tax code to reduce its burden on businesses and make it more profitable for them to remain in the country. (RELATED: US Tax Code Causes Corporations to Flee Overseas)
“Still,” Lew said, “the administration is clear-eyed about the possibility that Congress may not move as quickly as necessary to respond to the growing wave of inversions,” and so is preparing to act independently.
Lew did not provide any details about what type of regulations Treasury might impose, nor did he say how long the administration would wait for Congress to act before taking the matter into its own hands.
The administration has been criticized for being too willing to resort to executive action when it fails to get its way with Congress.
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