Jul 24, 6:02 AM EDT

Obama wants limits on US company mergers abroad

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LOS ANGELES (AP) -- President Barack Obama is tapping into growing misgivings about tax-driven overseas mergers by U.S. corporations, issuing a new call to end the practice quickly and questioning the patriotism and citizenship of those companies.

The push comes amid a developing trend by companies to reorganize with foreign entities partly to reduce their tax payments in the U.S.

But Obama's election-year drive also coincides with increased attention to the issue by congressional Democrats, who are seeking to draw contrasts with Republicans and to portray them as too corporate-friendly.

Obama was scheduled to address the issue in remarks Thursday at a technical college in Los Angeles. Though he included a proposal to rein in such mergers and acquisitions in his 2015 budget, this marks a new, more aggressive focus on the issue by the president.

His administration began to ramp up attention to these transactions last week with a letter from Treasury Secretary Jacob Lew to House and Senate leaders. Lew said such deals, known as "inversions," "hollow out the U.S. corporate income tax base."

In his remarks, Obama was expected to call for "economic patriotism." White House officials said Obama would declare that those companies that engage in inversions are in effect renouncing their U.S. citizenship in order to shift their profits overseas.

Obama is urging Congress to enact legislation that is retroactive to May, arguing that will stop companies from rushing into deals to avoid the law.

Republicans and some Democrats, however, prefer to make those changes as part of a comprehensive overhaul of the corporate tax code that would also lower corporate tax rates and reduce the incentive for companies to seek out countries with lower levels of taxation.

Under such inversion deals, U.S.-based, multinational companies can lower their tax bills in part by combining with a foreign company and reorganizing in a country with a lower tax rate. The United States has a 35 percent income tax rate, the highest in the industrialized world, and it also taxes income earned overseas and then brought home.

Republicans such as Sen. Orrin Hatch of Utah say the U.S. first must change its policy of taxing income earned abroad.

Under current law, shareholders of a U.S. company that merged with an offshore entity would have to own less than 80 percent of the combined entity to take advantage of a lower foreign tax rate. Obama's budget proposes slashing that cutoff to 50 percent.

Administration officials estimate the deals, if allowed to continue, will cost the U.S. Treasury $17 billion in lost revenue over the next decade.

"We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes," Lew said in the letter.

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