Van Hollen, Levin Introduce Earnings Stripping Legislation to Limit Tax Inversions

Statement

Ways and Means Committee Ranking Member Sander Levin (D-MI) and Budget Committee Ranking Member Chris Van Hollen (D-MD) today introduced legislation aimed at reducing the number of corporate tax inversions by limiting the use of "earnings stripping" -- a common strategy used by foreign-controlled inverted corporations to lower their U.S. taxes.

"American taxpayers are on the hook for billions of dollars in corporate tax obligations because Congress has failed to close the egregious inversion loophole," said Congressman Van Hollen. "We cannot continue to allow companies to shift their tax obligations onto American workers and families simply by changing their mailing address. Putting an end to earnings stripping by inverted companies is an important step toward ensuring these companies aren't reaping taxpayer-funded benefits while failing to pay their fair share."

"Republicans have failed to take action on stopping corporate tax inversions, choosing instead to stand on the sidelines and watch one American company after another move their corporate headquarters overseas," said Rep. Levin. "After inverting, many of these companies engage in earnings stripping, a practice that enables them to significantly lower the amount of taxes they pay in the U.S, while taking advantage of our country's resources and strong workforce. While Republicans sit on their hands, House Democrats will continue to take actions to aggressively limit tax-motivated inversions."

Earnings stripping -- a common tax avoidance strategy following an inversion -- involves disproportionately leveraging a U.S. company with debt and "stripping" the U.S. tax base through deductible interest payments. The lending foreign parent (or another foreign affiliate) typically pays a reduced or zero tax rate on the interest income under an existing U.S. tax treaty. A 2007 Treasury report indicated that foreign-controlled inverted corporations aggressively engage in earnings stripping practices. The Stop Corporate Earnings Stripping Act would limit the use of earnings stripping by corporations that engage in tax-motivated inversions.

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