Legislative Activity

Democratic Tax-Writers Remain Focused on Inversions, Despite Push for International Tax Reform

Last week, the House Ways and Means Committee held its first hearing on international tax reform this session. During the hearing, Members and witnesses discussed the need for tax reform, the benefits and challenges that come from doing international tax reform separately from comprehensive reform, and specific ideas that should be included as tax-writers move forward with reforming the U.S. tax Code. With Republicans focused on fixing the “broken tax Code” through international tax reform as their first step, and Democrats instead arguing for immediate action to combat corporate tax inversions, the divide between the parties is clear.

Looking ahead, House Ways and Means Committee Chairman Kevin Brady (R-TX) remains focused on moving forward with international tax reform this year. Though Chairman Brady and Representative Charles Boustany (R-LA), who is leading the Committee’s efforts on international tax reform, recognize that actually enacting such reforms this year is unlikely, following last week’s hearing, Representative Boustany announced his intention to release a bill before the end of March. It is unclear whether the Committee will hold another hearing on the issue before Representative Boustany releases his bill.

Democrats, however, oppose the Republicans’ decision to focus their efforts on international tax reform as a standalone first option and instead continue to emphasize that a “piecemeal” approach to tax reform, which focuses on international tax reform first, actually makes comprehensive reform more difficult. As such, recognizing that comprehensive reform is not an option until at least 2017, Democrats remain focused on the need to address corporate tax inversions – specifically through curbing earnings stripping, as proposed in Ranking Member Sandy Levin’s bill (H.R. 4581, The Stop Corporate Earnings Stripping Act of 2016), which he introduced last week. Note too, at the end of last week, following the introduction of this bill, nine House Democrats wrote a letter to Treasury Secretary Lew urging him to further restrict “hopscotch” loans.

In addition to the divide between House Ways and Means Republicans and Democrats, the Senate Finance Committee, led by Chairman Orrin Hatch (R-UT), is focused on corporate integration (i.e., offering companies a deduction for money paid to shareholders as dividends). Though he has not yet released much detail on his proposal (he is waiting for a score from the Joint Committee on Taxation), Chairman Hatch has emphasized that his proposal would not impede the Ways and Means Committee’s efforts on international tax reform, but instead might actually complement their work. Chairman Hatch noted that his approach “could significantly reduce effective corporate tax rates without all the difficult and highly politicized trade-offs that will accompany a reduction in the statutory corporate tax rate…and could help prevent future inversions and foreign takeovers and simply make the United States a better place to do business overall.” Still, Ranking Member Ron Wyden (D-OR) has indicated that he soon plans to release a bill that would make inversions more difficult by making various policy changes, including by addressing: (1) the ownership threshold for inverted companies; (2) hopscotch loans; and (3) “spinversions.”

This Week’s Hearings:

• Tuesday, March 1: The Senate Finance Committee will hold a hearing titled “The Multiemployer Pension Plan System: Recent Reforms and Current Challenges.”

Regulatory Activity

OECD Releases “Inclusive” BEPS Framework

The Organisation for Economic Co-operation and Development (OECD) recently released an “inclusive framework” for implementation of its Base Erosion and Profit Shifting (BEPS) Project. Designed to address tax avoidance and improve the coherence of international tax rules, the BEPS Project is now being implemented domestically by various countries around the world. To aid in this process, “all countries and jurisdictions, whether developing or developed, are invited to participate in a new inclusive BEPS implementation forum.” Participants, “on an equal footing,” will take joint action to implement BEPS and set additional standards. Those countries opting to participate in this framework will meet in Kyoto, Japan on June 30 and July 1, 2016.