[Congressional Record Volume 148, Number 34 (Thursday, March 21, 2002)]
[Senate]
[Pages S2272-S2273]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. WELLSTONE (for himself and Mr. Dayton):
  S. 2050. A bill to amend the Internal Revenue Code of 1986 to treat 
nominally foreign corporations created through inversion transactions 
as domestic corporations; to the Committee on Finance.
  Mr. WELLSTONE. Mr. President, I rise to introduce legislation that 
would bar multinational corporations from avoiding millions of dollars 
in taxes through the use of shell corporations in foreign tax havens.
  On February 18 the New York Times in an article entitled ``U.S. 
Corporations Are Using Bermuda to Slash Tax Bills,'' reported that a 
number of prominent U.S. corporations, using creative paperwork, have 
transformed themselves into Bermuda corporations purely to avoid paying 
their share of U.S. taxes. These new Bermuda entities are shell 
corporations. They have no staff, no offices and no real business 
activity in Bermuda. They exist for the purpose of shielding income 
from the IRS.
  How does the ``Bermuda Triangle'' tax loophole work? U.S. companies, 
referred to as ``domestic corporations,'' pay U.S. taxes on their 
worldwide income, whether that income is earned in the United States or 
abroad. Foreign corporations pay U.S. taxes only on income earned in 
the United States.
  Through the use of a process called corporate inversion, a domestic 
company can be ``acquired'' by a shell corporation chartered in a 
foreign county with low or no corporate taxes, Bermuda for example. 
Under such an arrangement, the shareholders of the new foreign parent 
are the same as the shareholders of the old U.S. company. This maneuver 
requires little more than filing of the proper paperwork in the new 
``home'' country and payment of a registration fee. The new foreign 
parent corporation need not have any offices or any staff, and they 
usually don't.
  United States tax law contains many provisions designed to expose 
such creative accounting and to require U.S. companies that are foreign 
in name only to pay the same taxes as other domestic corporations. 
Corporate inversions are designed to exploit a specific loophole in 
current law so that the company is treated as foreign for tax purposes, 
and therefore pays no U.S. taxes on its foreign income.
  My bill closes this loophole in a way that is narrowly tailored to 
capture

[[Page S2273]]

corporate inversion transactions. In the case of inversion ``stock 
swaps'' the bill directs the IRS to look at the ownership of the new 
company to assess whether it is a domestic firm.
  The loophole gives tens of millions of dollars in tax breaks to major 
multinational companies with significant non-U.S. business. It also 
puts other U.S. companies unwilling or unable to use this loophole at a 
competitive disadvantage. No American company should be penalized 
staying put while others renounce U.S. ``citizenship'' for a tax break.
  Of course when some companies don't pay their fair share, the rest of 
American taxpayers and businesses are stuck with the bill. I think I 
can safely say that very few of the small businesses that I visit in 
Detroit Lakes, MN, or Mankato, in Minneapolis, or Duluth can avail 
themselves of the Bermuda Triangle.
  When we have our debate over budget priorities here in the Senate, we 
need to decide whether we are going to go after tax scofflaws or 
instead put these resources into fair tax relief, public investment, or 
saving social security. That's what this legislation is all about. I 
hope colleagues will take a close look and be able to support it.
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