Senate Panel to Take On Inversions in Review of Global Taxation

  • Merger strategy emerging as issue after Pfizer-Allergan deal
  • Hatch panel also to review OECD calls for tax system changes

The U.S. Senate Finance Committee will take on corporate inversions as part of a broader review of challenges posed by international tax rules that it says encourage multinational companies to move profits and property to countries with lower rates.

While inversions are not the sole focus of a committee hearing scheduled for Dec. 1, the merger strategy is under renewed scrutiny by policy makers after New York-based Pfizer Inc. announced plans Monday to move its tax address to Ireland as part of a $160 billion combination with Allergan Plc.

Committee Chairman Orrin Hatch, a Utah Republican, said Tuesday his panel will mainly be reviewing changes to the international tax system recommended last month by the 34-nation Organization for Economic Cooperation and Development. Still, Aaron Forbes, a spokesman for the committee, said he expected that topic of corporate inversions to also be discussed.

“In today’s global economy, many nations, including the United States, are facing tax-base erosion as multinational companies shift profits, activities and property from high-tax to low-tax jurisdictions,” Hatch said in a statement announcing the hearing.

Inversions -- where U.S. companies use mergers to take foreign addresses and cut their tax rates -- emerged as a hot topic in Washington over the past year. Democratic presidential front-runner Hillary Clinton on Monday attacked Pfizer’s plan, saying it would “leave U.S. taxpayers holding the bag” and urging a crackdown on such deals. While it plays into Democrats’ campaign themes, some Republican contenders, including Donald Trump, have backed tax-law changes to end the incentive for these transactions.

The Pfizer-Allergan deal is structured so that Dublin-based Allergan is technically buying its much larger partner, a move that makes it easier for the company to locate its tax address in Ireland, though the drugmaker’s operational headquarters will be in New York.

Reduced Rate

Pfizer’s shift to Ireland, which has a 12.5 percent company tax rate, will be the biggest tax inversion in history. The U.S. corporate tax rate is 35 percent -- the highest in the Western world.

The transaction was announced less than a week after the Treasury Department took steps to discourage inversions by making the deals more difficult and limiting their benefits, in the second round of curbs by the agency in 14 months. The merger appears structured to avoid the tax inversion rules. The Treasury said Monday that it doesn’t comment on specific deals.

In the House, the Ways and Means subcommittee on tax policy announced its own hearing on Dec. 1 into the OECD’s tax recommendations. In a statement, subcommittee Chairman Charles Boustany, a Louisiana Republican, called them "a troubling indication of a desire to target American companies." A committee spokesman, David O’Brien, didn’t immediately respond to whether the House hearing, like the Senate one, will include a focus on inversions.

The witnesses for the Senate hearing will be Robert Stack, deputy assistant treasury secretary for international tax affairs, and Dorothy Coleman, vice president of tax and domestic economic policy at National Association of Manufacturers, the committee said.

In its review of the OECD proposal, Hatch said the panel would be studying its impact on U.S. taxpayer confidentiality and the Treasury’s authority to implement rules envisioned under the bloc’s recommendations. He said he has asked the Government Accountability Office, the investigative arm of Congress, to conduct an in-depth analysis of the OECD plan.

The committee will also look into European Union investigations of American multinationals that have resulted in increased uncertainty and foreign tax liabilities for U.S. businesses abroad, he said.

Before it's here, it's on the Bloomberg Terminal.