American International Group Inc. Chairman Steve Miller said Monday that lawmakers should bring U.S. corporate tax rates in line with other nations' to halt firms from switching their legal address to cut obligations.
The U.S. corporate tax rate of 35 percent is the highest in the world, which causes companies to rush for the exits like people do when there's a "fire in the theater," Miller said Monday on a Bloomberg TV program.
AbbVie Inc., maker of the arthritis medicine Humira, announced a deal last week to move its tax home to England in a purchase for more than $50 billion of Shire PLC. Senate Finance Chairman Ron Wyden, D-Ore. who first said he wanted to address such inversions as part of a broader tax revamp, said last week that he's exploring near-term options. His committee is scheduled to hold a hearing on the maneuvers today.
"Our politicians want to lock the doors," Miller said. "The real answer would be, let's put out the fire, which means to make our U.S. tax system competitive on a global scale."
AIG accumulated losses through the financial crisis that enabled the company to avoid payments to the U.S. in recent years after returning to profitability. The New York-based insurer in 2011 announced the hire of Clarissa Potter, former deputy chief counsel of the Internal Revenue Service, to help protect tax assets.
U.S. companies appear to be racing to complete tax-reducing offshore mergers before a credible threat to stop them emerges from Congress.
AbbVie announced the largest such inversion deal on Friday. It joins seven other companies, including Medtronic Inc., with pending deals that would be unwound, renegotiated or penalized under plans from the Obama administration and Congress to make tax changes retroactive to May.
Each deal puts additional pressure on lawmakers to act while making it more disruptive if they change the rules retroactively. Democrats want to stop U.S. companies from moving their addresses abroad through purchases of smaller businesses overseas. Republicans have resisted, labeling such proposals punitive and porous.
"As more deals get announced and expectations are created and expenses are incurred to move these deals along, it becomes harder and harder to hold to that May effective date," said Robert Willens, a corporate tax consultant in New York. "The bankers and the lawyers are telling them that, 'Hey, the sooner you announce this thing, the greater the chances are that the deal will go through as you intend.'"
Companies including Medtronic and Salix Pharmaceuticals Ltd. are including contingencies that allow them to back out if Congress acts unexpectedly, showing how crucial the tax ramifications are to such deals. AbbVie and Shire don't have such a clause in their agreement.
No corporate inversion deal has closed since May 8, when Wyden wrote an opinion piece in the Wall Street Journal intended to mark that day as the effective date for anti-inversion legislation that he wants to pass.
Wyden, who had first said he wanted to wait to address inversions as part of a broader tax-code revamp, said last week that he is exploring near-term options. So far, without a Republican partner, the Democratic push for retroactive legislation is stalled.
Information for this article was contributed by Noah Buhayar of Bloomberg News.
Business on 07/22/2014