United States: Washington Update: Pressure Mounts On Lawmakers And The Treasury As More Inversion Deals Announced

Last Updated: September 26 2014
Article by Grant Thornton

Lawmakers have just a few legislative days remaining before they break again for the final stretch of campaigning ahead of the November midterm elections. That leaves little time to address one of the the hottest issues of the summer, tax inversions. Although legislators from both parties agree on the need to stem such transactions, which ultimately result in an erosion of the U.S. tax base, they have yet to agree on how to do so.

A look back at inversions

The issue of tax inversions – whereby a U.S. corporation is replaced by a foreign corporation as the parent company of a worldwide affiliated group of companies – has been a thorn in the side of lawmakers for years. Such transactions in effect allow a U.S. company to move its tax home to a lower-tax jurisdiction. In 2004, Congress enacted Section 7874, which was designed to prevent such transactions.Under Section 7874, if certain conditions are met, a foreign acquiring corporation will be treated as a U.S. domestic corporation.

The present dilemma

Recently, the debate over whether this law has been effective enough in deterring the practice has ratcheted up, especially after American pharmaceutical giant Pfizer Inc. announced in April that it would invert with AstraZeneca PLC and establish a new tax home in the United Kingdom. While that deal eventually fell apart, other U.S. companies, like AbbVie Inc., Chiquita Brands International Inc., and Medtronic Inc., among others, have announced similar deals.

To many members of Congress, the enactment of Section 7874, while a bipartisan effort, reflects a systematic problem with the U.S. tax code, namely that short-term patches have taken precedence over long-term, holistic changes. Although Congress is nearly unanimous in its desire to fundamentally reform the tax code, an equal desire not to further increase the deficit has made progress on such reform difficult. In dealing with the immediate threat brought on by the most recent wave of inversions, the same issue of short-term fixes versus long-term reform remains a key area of contention.

Some Democrats, including Senate Finance Committee Chairman Ron Wyden (D-OR), have supported standalone measures that would strengthen the anti-inversion rules of Section 7874 retroactively from May of this year. His counterpart on the Finance Committee, Ranking Minority Member Orrin Hatch (R-UT), has also expressed openness to enact legislation on inversions outside of comprehensive tax reform. Hatch, however, has said he will only consider legislation that is revenue neutral and not punitive or retroactive.

Hatch's willingness to support such standalone legislation is at odds with many in the Republican Party. Outgoing House Ways and Means Committee chair Dave Camp (R-MI) and Speaker John Boehner (R-OH) have each suggested addressing inversions as a part of comprehensive tax reform. Paul Ryan (R-WI), Camp's presumptive replacement should Republicans retain control of the House of Representatives, is said to agree with that approach.

Meanwhile, the Obama administration is exploring a move forward on its own, with Treasury Secretary Jack Lew announcing several weeks ago that the Treasury would explore options to curb the attractiveness of tax inversion transactions. On September 8, Lew said Treasury officials were reviewing a broad range of actions that could either limit companies' ability to engage in inversions or reduce the tax benefits after inversions take place, and that the Treasury would make a decision "in the very near future." Discussion of the Treasury's ability to move on its own ramped up after a former Treasury official wrote an article describing regulatory measures the administration could undertake without having to wait for a divided Congress to act.

Lew, however, also said that the best way to address inversions would be through tax reform, and that "only a change in law can shut the door, and only tax reform can solve the problems in our tax code that leads to inversions."

That approach is generally the consensus by many members of Congress, Wyden and Hatch included, but many of those members also recognize political reality: It is highly unlikely that Congress will enact comprehensive tax reform legislation in the current calendar year. The odds are similarly low for tax reform in 2015 or 2016, especially as attention is diverted to the presidential election. Those members believe anti-inversion legislation is too important to wait for comprehensive tax reform.

Potential solutions for preventing inversions

At this point, there are three options for Congress:

Option Generally Supported By Possible Outcome
Standalone Anti-Inversion Legislation Democrats; Finance Committee Ranking Member Orrin Hatch Stopgap measure could stem tide of inversion activity. More likely to be agreed upon than complicated comprehensive tax reform. But if it raises revenue and is punitive or retroactive, Hatch is unlikely to support.
Standalone Anti-Inversion Legislation but with tie-in to Tax Reform Some members of both parties Recognizes difficulty of tax reform and takes practical step of acting on specific, short-term goal, but also considers the root of the problem. However, such tie-ins are not always well crafted, and many members would want any revenue raised to count toward future tax reform legislation.
Anti-Inversion Legislation only with Comprehensive Tax Reform Most Republicans, some Democrats Both sides have suggested fundamental tax reform is the best opportunity to dramatically reshape expatriation incentives for businesses. But this is highly unlikely in the near term.

Other Legislative Proposals

  • President Obama's FY15 Budget proposal: Broaden definition of inversion transaction by reducing 80 percent test to a greater than 50 percent test, eliminating the 60 percent test. Regardless of shareholder continuity, an inversion transaction would be deemed to have occurred if the combined entity has substantial business activities in the U.S. and the foreign corporation is primarily managed and controlled in the U.S.(Proposal by President Obama, FY2015 budget)
  • Stop Corporate Inversions Act of 2014 (H.R. 4679): Proposed by Rep. Sander Levin (D-MI), this bill proposes the same general changes outlinedin President Obama's FY15 Budget, but would be retroactive to May 8, 2014.
  • Stop Corporate Inversions Act of 2014 (S. 2360): Proposed by Senator Carl Levin (D-MI), this is the Senate companion bill of H.R. 4679., It would enact the same changes but sunset after two years.
  • Strengthen earnings-stripping rules under Section 163(j): Proposed by Senator Chuck Schumer (D-NY), this proposal would repeal the debt-equity safe harbor provision and reduce the ratio by which related party interest paid can exceed taxable income before it is considered nondeductible from 1.5:1 to 1.25:1.


Congressional leadership, as well as the taxwriters in both parties, would prefer to see anti-inversion legislation to be a part of comprehensive tax reform. In the latest Grant Thornton International Business Report (IBR)1, a majority of the 2,500 senior executives surveyed have called for "updated tax rules for a modern, digital economy and the harmonization of global corporation tax rates."

Francesca Lagerberg, global leader for tax services at GTI, said, "International tax standards clearly need to be stripped down and rebuilt for the world we live in today. The existing legislation is no longer fit for purpose in an increasingly interconnected, digital world in which the definition of a 'border' is archaic and next to meaningless."

However, there is a sense that such reform is unlikely in the near-term, at-least in the U.S. Recognizing this, Democrats want to pursue standalone legislation outside of tax reform to stem the tide of the most recent wave of tax inversions. Republicans, however, are wary of such an approach, warning that piecemeal approaches do not solve the larger problem of tax base erosion and expatriation by U.S. companies.

The Treasury has broad authority to implement regulations, but that authority does have its legal and practical limits. While no specifics have been announced by the Obama administration, it remains to be seen how effective the measures developed by the Treasury, if any, have on making tax inversions less attractive.

At the same time, as more attention is heaped on such transactions, companies may rethink the strategy altogether, so as to avoid poor publicity or an intensive scrutiny of their transaction. Walgreen Co.'s acquisition of Alliance Boots GmbH was restructured so that Walgreens would not re-domicile outside the U.S.Burger King Worldwide Inc.'s merger with Tim Hortons Inc. was almost immediately announced by the companies as having non tax-related reasons for merging. Finally, Valeant Pharmaceuticals International Inc. announced in a securities filing that the IRS was examining the company's consolidated group for the years immediately following its inversion and re-domiciliation in Canada.

"It is important to remember that like many issues facing Congress, things can change quickly," said National Managing Principal of Public Policy Mary Moore Hamrick. "Grant Thornton is committed to advancing tax reform to nurture growth, create certainty and reduce complexity, and we will be monitoring this issue closely."

As the issue of tax inversion develops, so too will this document. Check back for more updates soon. For additional information about tax inversions, potential legislation or other tax issues, contact the Washington National Tax Office or Public Policy group.


1. The Grant Thornton International Business Report (IBR) is a survey of 2,500 senior executives in 34 economies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
McDermott Will & Emery
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
McDermott Will & Emery
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions