[Congressional Record (Bound Edition), Volume 149 (2003), Part 3]
[Senate]
[Pages 4167-4168]
[From the U.S. 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

[[Page 4168]]

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- 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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