[Congressional Record Volume 149, Number 28 (Friday, February 14, 2003)]
[Senate]
[Pages S2520-S2521]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
THE CORPORATE PATRIOT ENFORCEMENT ACT OF 2003
Mr. LEVIN. Mr. President, I have joined with Senators Reid, Durbin,
and Kennedy in introducing the Corporate Patriot Enforcement Act of
2003.
Over the past several years we have been hearing more and more about
U.S. corporations using offshore tax havens to avoid paying their fair
share of U.S. taxes. One of the most egregious abuses is when a U.S.
corporation reincorporates on paper in a tax haven and establishes a
headquarters there when, in reality, its primary offices and production
or service facilities remain right here in the United States. By
opening shell headquarters in a tax haven like Bermuda, companies that
got their start in this country, do most of their work here, and
benefit from U.S. roads, banks, patents, computers, law enforcement,
fair trade laws, its educated workforce, and much more, avoid
contributing their fair share to pay for those benefits. Instead, these
companies force the rest of America's taxpayers to shoulder the tax
burden they have shed.
This corporate conduct mistreats the average American. It undercuts
the U.S. corporations that do pay their taxes. It is unfair, it is
founded on a deception, and it is time for Congress to put an end to
it. It is time for Congress to say to these companies, if you want
benefits, you need to stop avoiding your fiscal responsibility with the
sham of appearing to move.
The list of companies that have undertaken the tax haven headquarters
pretense now called ``corporate inversions'' is growing. The list
currently includes such U.S. born companies as Fruit of the Loom,
Ingersoll-Rand, and Tyco, although Tyco shareholders are trying to
shame that company's management into giving up its Bermuda shenanigans.
It is likely that this list of corporate inversions will continue to
grow unless Congress acts to close the tax loopholes that currently
permit U.S. companies to benefit from their gamesmanship and avoid
federal taxes at the expense of average taxpayers and good corporate
citizens. That is why we are introducing the Corporate Patriot
Enforcement Act of 2003, the same bill Representative Neal introduced
in the House last Congress which garnered over 150 co-sponsors.
This bill would deny tax benefits to U.S. companies that invert by
continuing to treat them as U.S. companies for tax purposes. This bill
would not only level the playing field between these companies and
their U.S. competitors, it would also save other U.S. taxpayers from
having to pick up an estimated $4 billion in tax revenues over the next
10 years.
U.S. corporations that reincorporate in tax havens typically reduce
their U.S. tax liability in at least two ways. First, by setting up
headquarters in a tax haven, the company can eliminate its liability
for U.S. taxes on passive and other forms of income earned in foreign
jurisdictions. For instance, the company no longer would have to pay
U.S. tax on the interest, dividends and royalty payments received by
its foreign affiliates which would otherwise have been taxed under
Subpart F of the U.S. tax code. By creating a new, so-
[[Page S2521]]
called ``parent'' company in a tax haven jurisdiction, the company's
obligations under Subpart F disappear, and the passive and other forms
of income that would otherwise be treated as Subpart F income subject
to U.S. taxation is no longer taxed by the United States. Second,
companies that pretend to move their headquarters to a tax haven
typically also use tax strategies to shelter income actually earned in
the United States. By deflecting this income to the shell parent
located in a low or no tax jurisdiction, these companies avoid paying
U.S. taxes on income earned right here in the U.S.
Unlike other corporate inversion proposals under consideration, our
bill would deny all corporate inverters both of these sought-after U.S.
tax benefits in their entirety. Corporate inverters would be treated as
U.S. companies for U.S. tax purposes, thereby denying them all of the
tax benefits sought by their inversion transactions. This approach
hopefully will put an end to companies pretending to move to Bermuda or
any other tax haven in order to duck corporate taxes at the expense of
honest taxpayers left holding the bag.
Under this bill, a company would be deemed to be inverted, and
therefore be treated as a U.S. company, if: 80 percent of the
shareholders in the previous U.S. company are shareholders of the new
company; and the new company acquires substantially all of the property
of the old company; or between 50 and 80 percent of the shareholders in
the previous U.S. company are shareholders of the new company; the new
company acquires substantially all of the property of the old company;
the new company conducts no substantial business activity in the new
jurisdiction; and the stock is principally traded in the U.S. These
rules would apply to inversions that occurred after September 11, 2001.
Rather than let companies that inverted previously enjoy future tax
benefits they do not deserve, the amendment would give companies that
inverted prior to September 11, 2001 an opportunity to incorporate back
in the United States. If a company failed to do so, the U.S. would
begin treating it as an inverted company beginning in 2004 and deny it
the future tax breaks sought from its inversion.
We should not let companies off the hook that try to avoid paying
U.S. taxes by setting up a computer in a tax haven jurisdiction. Now is
the time to close this corporate expatriation loophole. I hope my
colleagues will join with us in enacting this legislation into law this
year.
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