For corporations mulling pulling up stakes to escape U.S. taxes, here is
Hillary's Christmas gift for offshore wannabes. Happy Holidays! #HillaryHasAPlan
Factsheets
Hillary
Clinton believes that getting incomes rising by creating good-paying
jobs is the defining economic challenge of our time. Today, as part of
her plan to create jobs and kick-start wage growth, Clinton is releasing
a proposal to stop so-called “inversions” where companies leave the
United States on paper to lower their taxes. She will use the proceeds
of this plan to encourage and reward investment in good-paying jobs here
in the United States.
Hillary believes that we need a broader
conversation on reforming our business tax code, but we simply cannot
wait to prevent inversions and related transactions that threaten to
further erode our tax base as Republicans in Congress use gridlock to
allow them to continue.
Congress should act immediately to prevent
corporations from engaging in inversions, where businesses move their
corporate residence abroad on paper in order to escape paying their fair
share of taxes. Without immediate action, inversions and transactions
like the recently announced Pfizer-Allergan deal – in which Pfizer is
merging with Allergan, giving up its identity as a U.S. company, and
becoming “Irish” for the purpose of lowering its tax bill –
will continue to erode the U.S. tax base. These corporations benefit
from access to the most talented workforce in the world, billions of
dollars in public investment in basic research, and the robust American
legal system, yet trade in their U.S. identity to avoid paying their
fair share. Inversions and transactions like Pfizer’s could be stopped
if the Republicans were not standing in the way of legislation to
prevent them. It is time for Republicans in Congress to stop thwarting
action, and stop using tax games as a method of tilting the tax code
even further toward the largest multinational corporations.
Throughout
this campaign, Hillary has said that our economy works best when
businesses invest in America for the long term. She firmly believes
businesses want a playing field that’s both fairer and more competitive,
in which the biggest multinational corporations no longer get special
advantages over smaller, domestic businesses. Ending inversions is a
first step – a step that cannot wait. Hillary believes that we need to
reform and simplify our business tax code to encourage and reward
investments in growth, innovation, and jobs here in the United States,
and she will be laying out further ways to do that in the months ahead.
Hillary Clinton has a plan to:
1)
Restrict “inversions” and related transactions that let companies
forego their U.S. identity to lower their taxes, through both
Congressional and regulatory action. Clinton’s plan will call
on Congress to prevent “inversions” and end transactions like the
Pfizer-Allergan deal. This includes imposing a commonsense 50%
threshold for foreign company shareholder ownership after a merger
before an American company can give up its U.S. identity, and an “exit
tax” to ensure multinational companies that change their identity pay a
fair share of the U.S. taxes they owe on earnings stashed overseas. If
Congress has not acted to address inversions and related loopholes,
Hillary is also calling for Treasury to use its full legal authority to
prevent inversions and restrict the tax loopholes they allow, including
cracking down on “earnings stripping,” one of the key benefits of
inversions.
2) Use the proceeds to invest in long-term growth and jobs in the United States. Clinton’s
plan will use the revenue from closing loopholes to help drive growth
and job creation here in America. That means strengthening research and
development; rewarding companies that bring good jobs to the United
States; and expanding support for advanced manufacturing, small
businesses, and startups. And while preventing inversions is a first,
immediate step that cannot wait, Clinton believes in the need for
broader changes in the business tax code and will discuss her approach
over the course of the campaign.
PREVENT ‘INVERSIONS’ THAT ERODE THE TAX BASE AND DISADVANTAGE COMPANIES THAT PROUDLY LOCATE IN AND INVEST IN THE UNITED STATES
Inversions and related transactions let corporations avoid paying their fair share. In the past decade, nearly 50 companies have chosen to leave the United States for a foreign country on paper, saving billions of dollars
in taxes through these so-called “inversions” and related transactions.
For example, Pfizer’s recently announced expatriation could help it
permanently avoid paying its fair share of taxes on as much as $70-$150 billion in foreign profits stashed offshore and
even more easily shift profits made here to low-tax countries overseas.
Inversions and related loopholes distort our tax code, erode the tax
base, and undermine fair competition between multinationals and domestic
companies:
- Inversions let corporations take
advantage of loopholes to permanently avoid paying their fair share and
erode the tax base – even as inverted companies benefit from the U.S.
economy: Companies that invert move abroad on paper, but keep
their headquarters and operations in the U.S. They still benefit from
America’s talented workforce and legal system – as well as public investment in infrastructure and research. However, inversions erode the U.S. tax base by tens of billions of dollars. For example, inverted companies can take advantage of additional loopholes, like “earnings stripping,” to further shift income abroad and avoid U.S. taxes. And such loopholes can, in some cases, allow inverted companies to more easily access foreign earnings without paying their fair share of taxes. Domestic competitors are thereby disadvantaged, and all of us have to make up the shortfall in revenues.
- Domestic U.S. businesses are put at a competitive disadvantage by inversions:Unlike
large multinational companies, small businesses and domestic companies
located entirely in the United States cannot take advantage of
international tax loopholes to lower the tax rates that they pay. As a
result, inversions put smaller American businesses at a disadvantage.
- Inverting companies often already face low effective tax rates: Even
though the U.S. has a 35% top statutory rate, loopholes and distortions
mean that some of the largest U.S. multinationals that are pursuing
inversions already often face low effective tax rates. That is true of
Pfizer: Reuters reported that it pays a lower share of its profits in overall income taxes than other competing pharmaceutical companies, and the Wall Street Journal highlighted its low tax rate using reporting practices for other companies. One study found
that effective tax rates for the largest U.S. multinationals were lower
than effective tax rates for the largest E.U. multinationals in eight
of the ten years from 2001-2010.
Clinton will prevent inversions and related transactions driven by tax planning to lower corporate tax bills.
Mergers should be carried out for business reasons, not to take
advantage of tax loopholes and avoid paying a company’s fair share of
taxes. We need to act now to prevent the continued erosion of the tax
base, or it will be further and further reduced by the time we reach a
solution on broader reform. Clinton’s plan is designed to prevent
transactions motivated by tax planning that allow American businesses to
avoid paying their fair share. Clinton’s plan would bar abusive
inversions by raising the threshold for the size of a foreign merger
partner to at least 50% of the combined company. This commonsense
approach would mean that an American company could no longer give up its
U.S. identity by finding a smaller merger partner overseas. This would
be an important step forward, but alone is not sufficient.
In
the absence of additional measures, corporations could still game the
50% threshold or barely meet it, and the tax system would continue to
favor corporations that move their residence abroad through foreign
takeovers. In a comprehensive approach to ending inversions and related
transactions, Clinton’s plan also includes two measures – an “exit tax”
on unrepatriated profits and ending “earnings stripping” – that would
reduce some of the significant tax advantages of expatriating. And, if
Congress has not acted, she would ask her Treasury Department to pursue
any other measures to prevent or restrict inversions and related tax
planning within its legal authority. In combination, these measures
would help ensure that, when a U.S. corporation merges with a foreign
corporation and moves its residence, the transaction is being done for
good business reasons and not to game the tax system:
- Entirely block inversions that are likely to be the most abusive through a 50% merger threshold:Today,
a company can give up its U.S. identity to avoid taxes through a merger
with a smaller foreign company where only a small stake of ownership – one-fifth of the combined company
– goes to the foreign company’s shareholders. This is indefensible.
Clinton’s plan would require that no U.S. company could pretend to be a
foreign company to avoid paying U.S. taxes unless its merger partner is
the same size or larger. And she would call for Congress to make this
restriction retroactive to May 2014, following proposals introduced by Democrats in Congress and President Obama’s Treasury Department. In the past, Republican and Democratic presidents have signed or proposed retroactive legislation applying to inversions and other loopholes.
- Ensure that companies leaving the U.S. pay an “exit tax” on what they owe on their overseas earnings:In
addition to barring inversions between a U.S. company and a smaller
foreign company, Clinton would call on Congress to impose an “exit tax”
on the untaxed overseas earnings of multinational companies that leave
the U.S. to avoid the taxes they owe on these earnings.
Under the current system, U.S. companies can defer taxes on their
overseas earnings until they bring the money back to the U.S. As a
result, U.S. corporations hold trillions of dollars overseas, deferring the U.S. taxes that they owe.
Companies that shift their residence abroad often have an advantage in
using tax planning to access earnings stashed overseas without paying
the taxes that are supposed to be paid when foreign earnings are accessed.
Clinton believes that if a company does give up its U.S. identity, it
should pay taxes on the unrepatriated profits that it made as a U.S.
company, benefiting from U.S. infrastructure, our investments in human
capital, and the efforts that the government makes on behalf of U.S.
corporations – from basic research to enforcing trade treaties. When an
American citizen renounces their citizenship, there are rules
intended to make sure they pay the taxes that they owe. The same should
be true for corporations’ unrepatriated offshore earnings.
- Limit the ability of multinationals to engage in “earnings stripping:” Multinational
corporations use a practice called “earnings stripping” to shift
profits from the United States to countries with lower tax rates, and to
maximize high deductions in the United States. This loophole reduces
the taxes they pay in the U.S. – putting them at an advantage over
domestic and smaller competitors, and leaving others to pick up the
burden. Earnings stripping is much easier for a foreign-based
multinational to do. For instance, a foreign-based multinational can
load up a U.S. subsidiary with debt through loans from one part of the
company to another and claim a large deduction for the interest here in
the United States – all while sending the interest income abroad to a country with low tax rates. This is one of the main benefits
of inversions and related transactions, and potentially a benefit of
the Pfizer-Allergan deal – making it easier to strip profits out of the
United States. Ending the practice of earnings stripping would close a
loophole that costs taxpayers as much as $60 billion over 10 years.
- If
Congress does not act, ask the Treasury Department to use its full
legal authority to crack down on inversions and related transactions,
including by restricting earnings stripping. For more than a year, Clinton, President Obama, and Democrats
have called on Congress to take action. It would be far better if
Congress were to act itself. However, if Congress does not do so,
Clinton would ask her Treasury Department to use its full legal authority to restrict earnings stripping.
She would also ask her Treasury Department to pursue any other measures
within its legal authority to end related tax planning, such as further
cracking down on ways that corporations, after leaving the United
States, game the system to gain access to their unrepatriated earnings without paying a fair share of the taxes they owe.
- Republicans are standing in the way of action.For
more than a year, with the most recent rise of inversions, President
Obama and Democrats in Congress have put forward multiple proposals to
address inversions. Republicans in Congress, and most of the Republican
candidates, have blocked these efforts or done nothing to support
immediately preventing inversions. Republicans in Congress and on the
campaign trail have instead pushed for deficit increasing tax cuts
tilted toward the wealthiest and argued that companies have a legal
obligation to their shareholders to minimize their tax burden – without
making any effort to change the laws that lead to these loopholes in the
first place.
USE THE PROCEEDS FROM PREVENTING INVERSIONS AND CLOSING LOOPHOLES TO INVEST HERE, IN THE U.S.
Acting to prevent inversions and related loopholes would raise at least $80 billion over the next decade.
Clinton’s plan will use the proceeds from closing these loopholes to
provide tax relief for bringing jobs back to America and supporting
research, manufacturing, and small businesses. Clinton also believes
that preventing inversions is only a first, immediate step that we need
to protect the tax base, and will have more to say on her vision for
business tax reform.
- Reward research, innovation, and locating the good jobs of the future here in the U.S.:
Clinton believes that America must compete to be the world leader in
research and innovation, and the high-skilled, high-paying jobs of the
future. Her plan will use the tax code to reward innovation and research
at companies large and small, established and new. Over the coming
weeks and months, Clinton will lay out her vision for public investment
in basic R&D, and driving research in the private sector. America’s
future depends on leading the world in innovation, and we need rising
productivity to drive higher wages for workers over the long-run.
- Offer incentives to create good-paying jobs and revitalize communities here in the U.S.:
Clinton will offer incentives to reinvest and revitalize communities
here in the U.S., and create good-paying, high-skilled jobs. One example
of the type of proposals Clinton would offer is a plan
she released this week to offer a “Manufacturing Renaissance Tax
Credit.” This proposal would make hard-hit communities facing a
“downward spiral” of mass layoffs and closing plants eligible for a
package of relief to encourage new capital and new investment and jobs,
and refurbishing and repurposing facilities. She would make a version of
this proposal available in hard-hit coal communities as well. And, she
will have more to say on incentives to revitalize hard-hit communities
and create good jobs.
- Reward companies that bring jobs back and invest in the U.S. – and further crack down on shifting earnings and jobs overseas.Clinton
will offer new proposals to provide support for companies that move
jobs and production back to the U.S. from abroad. And, she will go
further than her proposals on inversions and related transactions to
crack down on loopholes that let corporations shift earnings and jobs
overseas.
- Close oil and gas loopholes and invest in clean energy: Already during this campaign, Clinton put forward a plan
to make America a clean-energy superpower by installing half a million
solar panels by the end of her first term, and by generating enough
renewable energy to power every home in America within ten years. And
her plan would be paid for by closing tax loopholes for oil and gas
companies.
- Simplify taxes for millions of small businesses – and allow small businesses to write off investments:
Today, the smallest firms spend 20 times as much in money and hours
filling out their taxes compared to their larger competitors. Over the
coming weeks and months, Clinton will offer new plans to simplify tax
filing for millions of small businesses and allow small businesses to
immediately deduct expenses, letting them expand their investments,
hiring, and growth.
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