After a summer in which high-profile companies like Burger King and medical device giant Medtronic drew criticism for restructuring and moving their headquarters overseas to avoid U.S. taxes, the Obama administration is taking action against the controversial tax scheme.
The Treasury Department issued new rules on corporate "inversions" that would limit U.S. multinationals' ability to access their foreign subsidiaries' earnings without paying U.S. taxes on them.
The administration also made it more difficult for companies to conduct inversions in the first place: After an inversion, the previous owners of the U.S. multinational would have to own less than 80% of the new multinational, among other changes announced on Monday. The new rules "apply to deals closed today or after today," the Treasury said in a statement.
"While there's no substitute for Congressional action, my Administration will act wherever we can to protect the progress the American people have worked so hard to bring about," President Obama said in a statement.
"We've recently seen a few large corporations announce plans to exploit this loophole, undercutting businesses that act responsibly and leaving the middle class to pay the bill, and I'm glad that [Treasury] Secretary Lew is exploring additional actions to help reverse this trend," he added.
Leading Democrats praised the administration's reforms but stressed that Congress needed to act as well to stop the practice.
"The administration is taking important and necessary steps to stem the tide of inversions in the wake of Republicans' refusal to act," said Rep. Sander Levin, ranking member of the House Ways and Means Committee, who has co-authored legislation that would place further restrictions on the practice. Levin added, "While administrative action is vital, it is clear that a full and lasting solution can only come from Congress."
Republicans have resisted such legislation, but their response to the White House's actions on Monday was muted, focused on criticizing the U.S. corporate tax rate and stressing the need for comprehensive tax reform.
"Under President Obama, the United States has the highest corporate tax rate in the developed world. The answer is to simplify and reform our broken tax code to bring jobs home," said Michael Steel, spokesman for House Speaker John Boehner.
Utah Republican Sen. Orrin Hatch said the recent rise in corporate inversions, along with the White House's response to curb them, showed the urgency for broader tax reform.
"America's tax system is broken to the point that it's putting our nation at a competitive disadvantage around the globe. That Treasury has opted to move forward with guidance to curb the recent uptick in corporate inversions only further underscores this monumental challenge," said Hatch, ranking member on the Senate Finance Committee, who has been working with his Democratic counterpart Sen. Ron Wyden on a tax overhaul.