Mark McSherry: Don’t hold your breath on a law against tax inversion

Global Outlook Is the party now over for the fast-growing number of American companies that are dodging US taxes by taking over foreign companies in order to incorporate in countries with lower tax rates?

Well, the US Government is definitely on their case, but with gridlock in Congress, it could prove tough to pass any legislation.

Nonetheless, in a letter this week to Ron Wyden, chairman of the US Senate Committee on Finance, the Treasury Secretary Jack Lew said Congress should enact legislation immediately to stop these so-called “corporate inversions” and make the law retroactive to May this year.

If that happened, the legislation could eradicate the tax benefits of any “inversion” mergers that were not closed by May, which could affect a number of recent deals.

Experts said that if the legislation passed – and it’s a big “if” – the mergers could still go ahead but and the US companies involved may not be able to incorporate abroad and the tax benefits could be lost.

“What we need as a nation is a new sense of economic patriotism, where we all rise or fall,” wrote Mr Lew. “We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes.”

A hearing by senators to debate international corporate taxation is scheduled for Tuesday, and Wall Street dealmakers expect the hearing to focus on inversions.

Washington realists do not expect a new law any time soon, let alone a retroactive one – and as a consequence bankers said that Mr Lew’s actions may now have the opposite effect.

The bankers explain that now they know the Government wants to bring the inversion trend to an end, American companies may rush to get their foreign takeovers done before legislation eventually makes it though the mayhem of Congress.