Lawmakers widely concerned about the wave of companies reincorporating overseas to avoid U.S. taxes split along partisan lines Tuesday, The Wall Street Journal reported yesterday. It is far from clear that Congress will take any action in response to the wave of mergers between U.S. and foreign firms, but the increasing use of the practice of corporate inversion has triggered alarm. Democrats have pushed for short-term fixes, while many Republicans are reluctant to take on the issue except as part of a broader tax-system overhaul. Sen. Charles Schumer (D-N.Y.) has called for legislation that would stop companies that have already relocated to tax-friendlier sites from taking advantage of a tax break, going beyond current proposals that would affect only future inversions. His measure wouldn't affect companies' tax liability from previous years. However, Republicans said that they would resist measures that seek to deal retroactively with firms that relocated overseas to escape the high U.S. corporate tax rate. Under Schumer's proposal, companies that have reincorporated overseas for tax purposes wouldn't be able to claim a tax deduction for interest expenses. The goal would be to stop the foreign part of the inverted companies from lending money to the U.S. part, enabling firms to get a tax deduction for paying interest on the loan and lowering their tax bill. He said that he will seek to add his proposal to legislation from Sen. Carl Levin (D.-Mich.) that would require that a foreign company's shareholders own at least 50 percent of the merged company, compared with 20 percent now, to avoid U.S. taxes.
