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Washington, D.C. – Today, Representative Lloyd Doggett (D-TX) introduced the Corporate EXIT Fairness Act and the Stop Tax Haven Abuse Act along with Senator Sheldon Whitehouse (D-RI). These bills would close a number of loopholes that let corporations and wealthy individuals book income to offshore tax havens to avoid taxes. The Joint Committee on Taxation calculates that this legislation would save taxpayers over $250 billion.
“Taxpayers and small businesses shouldn’t have to pick up the tab for companies that hide their income in offshore destinations. When companies rely on our workforce, our infrastructure, and our robust markets to earn their profits, they shouldn’t then play games and use gimmicks to avoid their taxes,” said Allie Robins, U.S. PIRG Tax and Budget Associate.
A recent U.S. PIRG report found that at least 73 percent of the Fortune 500 have subsidiaries in offshore tax havens. If we assume that average tax rate of 6.2 percent to all 298 Fortune 500 companies with offshore earnings, this implies they would owe a 28.8 percent rate upon repatriation of these earning, meaning they would collectively owe $717.8 billion in additional federal taxes.
The bills also seek to stop inversions—a process by which U.S.-based multinational companies claim to be a foreign corporation on paper in order to avoid paying U.S. taxes. The bill closes a critical loophole in tax law that allows this to happen when an American corporation merges with a foreign corporation. In theory, profits earned by the newly merged company in the U.S. would still be subject to U.S. taxes, but corporate inversions are usually followed by additional tax avoidance practices to make U.S. profits appear to be earned abroad and thus not subject to U.S. taxes.
“Stopping inversions and putting an end to tax haven abuse is one step to eliminating the rigged rules that privilege huge multinational corporations over ordinary citizens and small businesses,” said Robins. “We applaud the Congressmembers who support this legislation, as it represents tax reform that would truly benefit ordinary Americans and take a real swing at levelling the playing field.”
The Stop Tax Haven Abuse Act would:
- Stop U.S. companies that are managed and controlled in the U.S. from claiming to be foreign to avoid taxes.
- Close loopholes that allow high-tech and pharmaceutical companies to license the patents for their products to sham shell companies in tax havens, so they can book their profits there and avoid taxes.
- Require full and honest reporting from companies to determine if they’re booking profits to places where they are doing legitimate business, versus a P.O. box tax haven subsidiary with no employees.
- Repeal the check-the-box rules which allow companies to disregard certain foreign entities in its corporate structure for purposes of determining whether they owe taxes
The Corporate EXIT Fairness Act would:
- Apply an exit tax to any U.S. firm changing to foreign control, preventing the new foreign firm from accessing tax-free cash of U.S. subsidiary.
- Impose an exit tax as the greater of two calculations:
· Tax owed on accumulated deferred foreign income of the U.S. controlled foreign corporation, or
· Tax on the appreciation in value of the U.S. controlled foreign corporation.
- Tighten restrictions on corporate inversions, including increasing the threshold of foreign ownership required to accomplish the inversion for tax purposes, and imposing an independent management-and-control test that may prevent other attempted inversions. If a firm does not accomplish its tax-avoiding inversion aim under these tighter thresholds, then it will continue to be taxed as an American firm.
Click here to read the press release from Rep. Doggett on the Stop Tax Haven Abuse Act and Corporate EXIT Fairness Act.
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