Opening Statement of the Hon. Richard E. Neal, a Representative in Congress from the State of Massachusetts

Hearing on Corporate Inversions

June 6, 2002

Mr. Chairman and Mr. Rangel, thank you for bringing this important issue before the Committee today for consideration. The practice of reincorporating in a foreign country to avoid paying U.S. income tax is inconsistent with American corporate citizenship and unfair to those individuals and businesses who pay their fair share in taxes. Since I first wrote to colleagues in early February about this issue, the stream of corporations signing up to flee the jurisdiction has continued unabated, despite patriotic sentiments expressed around this great nation in the wake of the attacks of September 11th.

To address the problem of corporate inversions, Mr. Maloney and I introduced The Corporate Patriot Enforcement Act. Our bill simply says that companies that reincorporate overseas must pay U.S. income tax when the new company has substantially the same assets and more than 80% of the same shareholders of the former U.S. company. A tougher test is applied to corporate expatriates that have no substantial business activity in a foreign country and if its stock is principally traded in the U.S.

Shareholders of potential corporate expatriates should be on full alert. One expatriating company warned in an SEC filing, "Our shareholders may have more difficulty protecting their interests in Bermuda than would shareholders" in the U.S. I expect we will hear some expert testimony on this today.

And just this morning, I was intrigued to see the comments of the CEO of Goldman Sachs in the New York Times lamenting the fact that the American faith in U.S. corporations was at a low point, and that this lack of investor confidence was forestalling a recovery in our financial markets. Other corporate executives just don't get it, though. Yesterday, the CEO of corporate expatriate Stanley Tools said, "If you are taking your stewardship seriously, I think you have to do what I did."

Preventing corporate expatriates from cheating the federal treasury while their honest competitors and hard working Americans pay their fair share is a responsibility this Committee must assume. The solution is common sense -- stop these corporate traitors by shutting down the loophole now, and permanently. While we continue to fight for tax simplification ensuring that U.S. businesses remain competitive globally, we all acknowledge that this effort will take some time. Still, it will never be right for companies to buy a file cabinet in a tax haven to avoid millions in U.S. taxes, whether we keep our current corporate tax system or switch to another. A plug to this loophole is needed today, tomorrow, and forever.

We are fortunate today to have experts before us to testify about this issue. We are fortunate also that three of our Committee Members have been actively engaged on this issue and all have similar approaches to dealing with this problem. Again, I look forward to the testimony and prompt action to shut down this offensive practice.