[Congressional Record Volume 160, Number 76 (Tuesday, May 20, 2014)]
[Senate]
[Pages S3188-S3190]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LEVIN (for himself, Mr. Whitehouse, Mr. Rockefeller, Mr. 
        Cardin, Mrs. Boxer, Mr. Nelson, Mr. Johnson of South Dakota, 
        Mrs. Feinstein, Mr. Kaine, Ms. Hirono, Mr. King, Ms. Stabenow, 
        Mr. Schatz, Ms. Warren, Mr. Reed, Mr. Harkin, Mr. Franken, Mr. 
        Durbin, Mr. Walsh, and Ms. Klobuchar):
  S. 2360. A bill to amend the Internal Revenue Code of 1986 to modify 
the rules relating to inverted corporations; to the Committee on 
Finance.
  Mr. LEVIN. Mr. President, along with 16 cosponsors, I have introduced 
and am introducing today the Stop Corporate Inversions Act of 2014.
  This legislation is designed to address a loophole which, unless we 
close it, will be used to unleash a flood of corporate tax avoidance 
that threatens to shove billions of dollars in tax burden from 
profitable multinational corporations onto the backs of their American 
competitors and other American taxpayers.
  The issue we seek to address is known technically as corporate 
inversion. The details of inversion sound complex, but the principle is 
not. Inversion means avoiding potentially billions of dollars of U.S. 
taxes by changing a corporation's address for tax purposes to an 
offshore location. What we have is a tax avoidance scheme, an enormous 
loophole that allows companies to avoid billions in taxes without any 
significant change in where they operate, where their profits are 
generated, or where the location is of the executives who manage and 
control these corporations.
  A recent prominent example involves Pfizer, a U.S. drug company, and 
AstroZeneca, a U.K.-based company. This proposed corporate takeover, 
which Pfizer makes abundantly clear is all about avoiding U.S. taxes, 
has gotten a lot of attention, and for good reason. It would cost the 
United States about $1 billion a year in tax revenue. But this is not 
just about two companies. This is not just about one merger, even a 
merger that could shove billions of dollars of tax burden on other U.S. 
taxpayers. The Pfizer-AstroZeneca deal is the latest example of abusive 
inversion deals. You cannot pick up a newspaper's business section 
these days without reading about what Reuters calls ``a wave of tax-
driven overseas deal-making.'' Some companies that believe they are 
meeting their tax obligations are under competitive pressure to invert. 
It is clear dozens, perhaps scores, of companies are preparing to file 
their change-of-address cards and in doing so avoid billions in U.S. 
taxes. That burden doesn't just go away. Either our remaining 
constituents must pick up the tab or the loss of Treasury revenue adds 
to the Federal deficit.
  We tightened the rules regarding inversion schemes in 2004, and we 
did so promptly and on a bipartisan basis, but recent events show an 
enormous loophole remains, and so our bill seeks to address that 
loophole, and I hope once again we can do so promptly and on a 
bipartisan basis.
  Essentially the problem we have today is that a U.S.-based 
multinational can file a change-of-address card with the IRS simply by 
acquiring an offshore company that is much smaller than the U.S. 
company. Our bill would ensure that any inversion would meet a much 
more stringent test.
  Under current law, companies can pull off an inversion with a 
fraction of their stock, just over 20 percent, in the hands of the new 
stockholders overseas. Our bill would raise that threshold to 50 
percent or more. In addition, it would stop tax-avoiding inversions in 
cases where management and control remain in the United States.
  President Obama's 2014 budget included a similar proposal which one 
expert told the New York Times ``essentially eliminates inversions as 
we know them.''
  Our bill provides for a 2-year moratorium of tax avoidance through 
the use of inversions. Why a 2-year moratorium? This is in response to 
a number of our colleagues who say this is an issue which should wait 
for comprehensive tax reform. We all believe in comprehensive tax 
reform--or most of us do--but it is going to take time and it is 
uncertain. These corporate inversions represent an immediate threat. 
Our Treasury is bleeding from these inversions and from other loopholes 
which corporations use to avoid paying taxes. This bill is first aid 
for the Tax Code. A 2-year moratorium on inversions that do not meet 
our tougher standard stops the bleeding while we debate the 
comprehensive tax reform that most of us believe is desirable.
  As of this moment, however, there is no comprehensive tax reform 
legislation pending in either Chamber of Congress. There is no debate 
scheduled.

[[Page S3189]]

There is, in fact, not a single comprehensive tax reform proposal that 
has been formally introduced as legislation. That is not because no one 
in Congress cares about tax reform; nearly everybody does. But broadly 
reforming taxes is a complicated and time-consuming process.
  But we simply cannot wait. Multinationals are exploiting this 
loophole today. Meanwhile, hard-working American taxpayers and small 
business owners and even large corporations that have to compete with 
the tax avoiders but believe that inversion is wrong for their 
companies and for America see their tax burden rise while our national 
debt grows. How do we look them in the eye and say, ``We had a way to 
halt this gimmick, but we decided to wait for comprehensive reform that 
may or may not ever materialize?''
  This is similar to what Congress did on a bipartisan basis a decade 
ago. Then Senators Baucus and Grassley jointly declared they were 
working on legislation to stop abusive tax inversions. The bill, along 
with Chairman Wyden's announcement 2 weeks ago, should make clear to 
companies that considering tax inversion is now a mistake, because they 
are now on notice that it is not going to gain anything if a bill that 
prohibits tax avoidance through tax inversion passes, because the 
chairman of the Finance Committee has made it clear such a bill is 
going to be effective as of May 8 of this year, regardless of when the 
bill passes.
  So companies are on notice. There is no use rushing to the door to 
invert, or leaving the country to invert. It won't do them any good if 
the Finance Committee chairman has his way with either of these bills 
or other bills that set an appropriate date, such as May 8, to pass the 
Congress.
  These multinational companies benefit from the safety and security 
the U.S. Government provides. Our troops protect them. Our intellectual 
property rights protections allow them to profit from their innovation. 
They benefit from federally funded research. They claim tax subsidies 
for their research and development. They raise capital in U.S. 
securities markets that are the envy of the world, thanks to the rule 
of law this government protects.
  In the last 4 years, one of the companies at the center of this 
debate, Pfizer, received more than $4.4 billion in taxpayer money for 
federal contracts. Last month the Centers for Disease Control and 
Prevention awarded Pfizer a $1.1 billion contract.
  Yet that company and others are now poised to shortchange Uncle Sam 
by billions of dollars simply by changing their address for tax 
purposes. I am sure most of our constituents wish they could do that. 
Michigan taxpayers cannot reduce their tax bill with the stroke of a 
pen. Michigan small businesses cannot pretend they are based offshore 
for tax purposes. There is no pretense that any of these corporate 
inversions make sense from any standpoint other than avoiding U.S. 
taxes. That is their motivation and these companies aren't shy about 
saying so. They will continue to operate in the United States. The 
executives who manage them will continue to live and work in the United 
States. They will live under the umbrella of protection that our men 
and women in uniform provide, at the same time that we are cutting 
support to those same men and women because of the deficit these tax 
avoidance schemes have helped to create.
  Few even try to defend these inversions on principle. They are simply 
tax avoidance. Even the corporate executives who engineer them make 
little pretense as to any other purpose. So let us reform the Tax Code, 
yes. But while we craft and debate that reform, let us stop these 
transactions that add massively to our deficit and to the burden 
America's working families and small businesses must carry.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 2360

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Stop Corporate Inversions 
     Act of 2014''.

     SEC. 2. MODIFICATIONS TO RULES RELATING TO INVERTED 
                   CORPORATIONS.

       (a) In General.--Subsection (b) of section 7874 of the 
     Internal Revenue Code of 1986 is amended to read as follows:
       ``(b) Inverted Corporations Treated as Domestic 
     Corporations.--
       ``(1) In general.--Notwithstanding section 7701(a)(4), a 
     foreign corporation shall be treated for purposes of this 
     title as a domestic corporation if--
       ``(A) such corporation would be a surrogate foreign 
     corporation if subsection (a)(2) were applied by substituting 
     `80 percent' for `60 percent', or
       ``(B) such corporation is an inverted domestic corporation.
       ``(2) Inverted domestic corporation.--For purposes of this 
     subsection, a foreign corporation shall be treated as an 
     inverted domestic corporation if, pursuant to a plan (or a 
     series of related transactions)--
       ``(A) the entity completes after May 8, 2014, and before 
     May 9, 2016, the direct or indirect acquisition of--
       ``(i) substantially all of the properties held directly or 
     indirectly by a domestic corporation, or
       ``(ii) substantially all of the assets of, or substantially 
     all of the properties constituting a trade or business of, a 
     domestic partnership, and
       ``(B) after the acquisition, either--
       ``(i) more than 50 percent of the stock (by vote or value) 
     of the entity is held--

       ``(I) in the case of an acquisition with respect to a 
     domestic corporation, by former shareholders of the domestic 
     corporation by reason of holding stock in the domestic 
     corporation, or
       ``(II) in the case of an acquisition with respect to a 
     domestic partnership, by former partners of the domestic 
     partnership by reason of holding a capital or profits 
     interest in the domestic partnership, or

       ``(ii) the management and control of the expanded 
     affiliated group which includes the entity occurs, directly 
     or indirectly, primarily within the United States, and such 
     expanded affiliated group has significant domestic business 
     activities.
       ``(3) Exception for corporations with substantial business 
     activities in foreign country of organization.--A foreign 
     corporation described in paragraph (2) shall not be treated 
     as an inverted domestic corporation if after the acquisition 
     the expanded affiliated group which includes the entity has 
     substantial business activities in the foreign country in 
     which or under the law of which the entity is created or 
     organized when compared to the total business activities of 
     such expanded affiliated group. For purposes of subsection 
     (a)(2)(B)(iii) and the preceding sentence, the term 
     `substantial business activities' shall have the meaning 
     given such term under regulations in effect on May 8, 2014, 
     except that the Secretary may issue regulations increasing 
     the threshold percent in any of the tests under such 
     regulations for determining if business activities constitute 
     substantial business activities for purposes of this 
     paragraph.
       ``(4) Management and control.--For purposes of paragraph 
     (2)(B)(ii)--
       ``(A) In general.--The Secretary shall prescribe 
     regulations for purposes of determining cases in which the 
     management and control of an expanded affiliated group is to 
     be treated as occurring, directly or indirectly, primarily 
     within the United States. The regulations prescribed under 
     the preceding sentence shall apply to periods after May 8, 
     2014.
       ``(B) Executive officers and senior management.--Such 
     regulations shall provide that the management and control of 
     an expanded affiliated group shall be treated as occurring, 
     directly or indirectly, primarily within the United States if 
     substantially all of the executive officers and senior 
     management of the expanded affiliated group who exercise day-
     to-day responsibility for making decisions involving 
     strategic, financial, and operational policies of the 
     expanded affiliated group are based or primarily located 
     within the United States. Individuals who in fact exercise 
     such day-to-day responsibilities shall be treated as 
     executive officers and senior management regardless of their 
     title.
       ``(5) Significant domestic business activities.--For 
     purposes of paragraph (2)(B)(ii), an expanded affiliated 
     group has significant domestic business activities if at 
     least 25 percent of--
       ``(A) the employees of the group are based in the United 
     States,
       ``(B) the employee compensation incurred by the group is 
     incurred with respect to employees based in the United 
     States,
       ``(C) the assets of the group are located in the United 
     States, or
       ``(D) the income of the group is derived in the United 
     States,

     determined in the same manner as such determinations are made 
     for purposes of determining substantial business activities 
     under regulations referred to in paragraph (3) as in effect 
     on May 8, 2014, but applied by treating all references in 
     such regulations to `foreign country' and `relevant foreign 
     country' as references to `the United States'. The Secretary 
     may issue regulations decreasing the threshold percent in any 
     of the tests under such regulations for determining if 
     business activities constitute significant domestic business 
     activities for purposes of this paragraph.''.
       (b) Conforming Amendments.--
       (1) Clause (i) of section 7874(a)(2)(B) of such Code is 
     amended by striking ``after March 4, 2003,'' inserting 
     ``after March 4, 2003, and before May 9, 2014, or after May 
     8, 2016,''.

[[Page S3190]]

       (2) Subsection (c) of section 7874 of such Code is 
     amended--
       (A) in paragraph (2)--
       (i) by striking ``subsection (a)(2)(B)(ii)'' and inserting 
     ``subsections (a)(2)(B)(ii) and (b)(2)(B)(i)'', and
       (ii) by inserting ``or (b)(2)(A)'' after ``(a)(2)(B)(i)'' 
     in subparagraph (B),
       (B) in paragraph (3), by inserting ``or (b)(2)(B)(i), as 
     the case may be,'' after ``(a)(2)(B)(ii)'',
       (C) in paragraph (5), by striking ``subsection 
     (a)(2)(B)(ii)'' and inserting ``subsections (a)(2)(B)(ii) and 
     (b)(2)(B)(i)'', and
       (D) in paragraph (6), by inserting ``or inverted domestic 
     corporation, as the case may be,'' after ``surrogate foreign 
     corporation''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after May 8, 2014.
                                 ______