The Obama administration voiced its opinion in a letter to leaders of the congressional tax-writing committees over urging lawmakers to pass legislation that would limit U.S. companies' ability to reincorporate overseas for tax purposes.
In the letter, Treasury Secretary Jacob Lew encouraged that lawmakers "should enact legislation immediately...to shut down this abuse of our tax system."
The message from the White House comes just days after two U.S.-based drug firms, AbbVie Inc. and Mylan Inc., finalized foreign mergers allowing them to reduce their tax rates. Nearly 50 U.S. firms have made similar moves through inversion, the majority of them acting in response to the 2008 financial crisis.
The trend has only continued to grow in light of Congress' recent failure to pass a comprehensive tax-code rewrite that would make the U.S. system more alluring to businesses. Rumors that the Obama administration intends to substantially limit inversions has caused many companies to speed up the process and get deals signed, leaving room for the ability to walk away should the tax advantage suddenly be removed.
Although lawmakers remain divided over the issue, many Republicans along with some influential Democrats in Congress have pushed to limit inversions through a comprehensive overhaul, while others doubt that a quick fix is the way to go.
"I don't want to be part of legislation that ramps up the competitive disadvantage of being a U.S.-based company or makes U.S.-based companies more attractive targets for foreign takeovers," Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said in a recent statement.
In his letter, Mr. Lew suggested that companies adopt a form of economic patriotism rather than flee when times are tough.
"What we need as a nation is a new sense of economic patriotism, where we all rise or fall together," Mr. Lew wrote. "We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes."
Source: McKinnon, John, "Obama Administration Urges Immediate Action On Inversions," The Wall Street Journal, July 15th, 2014