The set of rules put out by Treasury this week is the third in two years, and it’s considered to be the strongest of the three.
Advertisement
“They are gaming the system”, Obama said of the companies that use the loophole. “We shouldn’t make it legal to engage in transactions just to avoid taxes”. “They declare that they’re based somewhere else, thereby getting all the rewards of being an American company without fulfilling the responsibilities to pay their taxes the way everybody else is supposed to pay them”, he said.
Mr Obama called the practice “one of the most insidious tax loopholes out there”. He said the USA and other countries should “lead by example” in closing loopholes and provisions. It also proposed rules created to limit “earnings stripping”, one of the major tax benefits for companies that invert.
The inversion was expected to lower the pharmaceutical giant’s tax rate to 17 or 18 percent and save the company about $35 billion in taxes. Clemente said USA multinationals have more than $2 trillion in profits parked or deferred overseas. Pfizer has rebuked these types of concerns, with CEO Ian Read emphasizing that, despite the shift in tax dollars, 85% of Allergan’s business is in North America. The Treasury Department wants to make the process more onerous.
The US President, a Democrat, called on the Republican-controlled Congress to close the loophole for good. When used, an American corporation typically will acquire a smaller company in another country.
“Rather than doubling down on polices that let a few big corporations or the wealthiest among us play by their own rules, we should keep building an economy where everybody has a fair shot, and everybody plays by the same rules”, Obama said.
Brent Saunders, CEO of Ireland-based Allergan, will have to settle for a $150 million “break-up fee” after Pfizer abandoned plans to buy his firm.
Pfizer and Allergan called off the deal as a result of the new rules.
Obama said that when companies exploit loopholes such as inversions, investment is hindered in the United States. Again, the administration is not trying to fix the problems with the business tax system.
US President Barack Obama said Tuesday that the revelations that powerful worldwide politicians and businessmen have hidden money in shell companies shows tax avoidance is a global issue.
“A lot of it is legal, but that’s exactly the problem, ” he said. What is worth wondering at this point is how much deeper does the corruption go, because we all know that the Papers are only scratching the surface.
Some groups representing foreign companies with US operations were critical of the new rules.
Advertisement
These actions would “further rein in inversions and reduce the ability of companies to avoid taxes”, Lew said, but he added that inversions can’t be fully stopped unless Congress takes action.
