Everyone knows that before you leave a restaurant you have to settle your bill — corporations shouldn’t get to play by different rules.
But that’s exactly what is happening for too many American companies. There is perhaps no area of the tax code that is as broken as our international corporate tax system. American corporations are keeping record amounts of profits offshore to avoid paying U.S. taxes.
Right now, loopholes allow these companies to use legal schemes to move profits they earned in the U.S. out of the country and into tax havens with low or no corporate tax rate — places like the Cayman Islands, the Bahamas, and the Isle of Mann. And our tax system allows corporations to defer paying taxes on these foreign profits until they decide to bring those profits back to the U.S.
Now companies are trying to take advantage of yet another loophole to get that cash back into the country and into the hands of their CEOs and investors without paying the U.S. taxes they owe. They do this by merging with smaller overseas companies and pretending — for tax purposes — that their new corporate headquarters is now located abroad. When companies do this it’s called an “inversion.”
It’s a scam, and it has to stop.
That’s why I’m introducing new legislation to make sure corporations are playing by the same rules as everyone else, called “Pay What You Owe Before You Go.” This measure will require corporations to pay their full U.S. tax bill before they leave the country, preventing them from sticking the rest of us with their tab.
This rule will ensure that corporations can’t dodge their tax bills, and will also make offshore tax havens less appealing — that means less money tied up overseas, and more money circulating in the American economy.
Take the pharmaceutical giant, Pfizer, as an example. Pfizer currently has $193 billion in untaxed profits stashed overseas. But by using this “inversion” loophole, Pfizer will get away with paying $0 in U.S. taxes on that $193 billion. Under my bill, Pfizer would owe as much as $68 billion in taxes — the same amount they would pay if they simply brought the money back home to be invested in the U.S. economy and remained a loyal American company.
People on both sides of the aisle acknowledge that our international corporate tax system is broken. The long-term solution is bipartisan international corporate tax reform. But until we get there, this is a commonsense step that will increase investment here at home, and ensure a level playing field for all American companies.