The U.S. Treasury Department is cracking down on corporate inversions, in which U.S. corporations dodge taxes by taking foreign addresses. This welcome effort should win bipartisan backing.
Corporate inversions attracted notoriety earlier this year when Burger King purchased Canada's much-smaller Tim Horton's and moved its corporate headquarters to Canada to lower its tax burden. Measures to address this rip-off of U.S. taxpayers were announced last Thursday by Treasury in the wake of Pfizer's attempt to purchase the drug manufacturer Allergan PLC for $150 billion, making it potentially the biggest drug industry purchase ever. Allergan, a New Jersey company, has a Dublin, Ireland address for the sole purpose of avoiding U.S. taxes.
The new regulations "will prevent U.S. firms from essentially cherry-picking a tax-friendly country in which to locate their tax residence," Treasury told Bloomberg News. Among the new measures is the requirement that a company be a tax resident of the foreign country in which it is created or organized. Currently, companies can do inversions if 25 percent of a company's business is done in the foreign country providing the tax breaks. It will also no longer be possible for a company to transfer operations overseas without paying taxes.
Treasury wisely made its new rules on inversions retroactive to September of 2014 to cover the Pfizer-Allergan plot and perhaps discourage the purchase. These corporations won't give up easily and with new dodges sure to emerge, regulations should be given the force of federal law. A combination of Democrats and newly populist Republicans this election season should be enough to make that happen in the months ahead.