Former U.S. Senators Trent Lott and John Breaux are part of a lobbying effort by companies that want to preserve the option of reducing their corporate taxes by moving their legal addresses overseas.
Nine U.S. companies that have sought cross-border mergers for tax reasons, are considering doing so or are targets of such deals have been pressuring lawmakers since April on legislation to stop the practice, federal disclosure reports show.
They include Medtronic Inc. (MDT), the Minneapolis-based company that is seeking to acquire Dublin-based Covidien Plc. (COV) Medtronic paid Breaux-Lott Leadership Group $200,000 in June to block legislation from moving forward. Breaux, a Democrat, was once a member of the Senate Finance Committee. Lott, a Republican, is a former Senate majority leader.
One company that hasn’t publicly announced an intent to move its address abroad -- Kimberly-Clark Corp. (KMB), the Dallas-based maker of Kleenex tissues and Huggies diapers -- added opposition to such legislation to its lobbying report. Kimberly-Clark is spinning off a health-care unit.
“There are a lot of reasons why tax reform is stuck in Congress, and one of them is because big companies with vested interests want it to be stuck,” said Adam Rappaport, a senior counsel at Citizens for Responsibility and Ethics in Washington, which flagged the Medtronic lobbying activity.
“Hiring an army of well-connected lobbyists is probably a good investment on their part, regardless of whether it is in the country’s best interest,” he said.
Democrats and Republicans have criticized the practice of companies moving their legal addresses out of the U.S., known as corporate inversions, though each party has a different approach. Republicans want to lower the corporate tax rate -- now set at 35 percent -- as part of a broad revamp of the U.S. tax code. The U.S. has the highest rate in the developed world.
Democrats are pushing a more targeted approach to make it effectively impossible for U.S. companies to buy smaller foreign businesses and take their addresses for tax purposes.
Legislation to prevent the practice introduced by Carl Levin, a Michigan Democrat, is stalled in the Senate. A companion House measure introduced by his brother, Representative Sander Levin, is also languishing.
President Barack Obama has directed the U.S. Treasury to find ways that the administration could block the deals without congressional action.
House Speaker John Boehner, an Ohio Republican, wrote an opinion piece in Politico yesterday urging the president not to act unilaterally.
“Such a move sounds politically appealing, but anything truly effective would exceed his executive authority,” Boehner wrote. “The president cannot simply rewrite the tax code himself.”
In 2011, 2012 and 2013, only two companies -- Arch Capital Group Ltd. (ACGL) and Nabors Industries Ltd. (NBR) -- lobbied on inversion legislation. Those companies had both inverted before the current wave of transactions.
Since January 2012, 12 U.S. companies have inverted and eight others are planning to do so.
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