The hearing will come to order.  I ask our guests to please take their seats.

Good afternoon.

Today, the Select Revenue Subcommittee continues its examination of the impact of the tax code on the competitiveness of American businesses.  The first three hearings looked at possible responses to the World Trade Organization's decision in the FSC / ETI dispute.

This hearing will examine the practice known as inversions whereby some companies move their legal residence from the United States to another country, usually a low-tax or no-tax jurisdiction.

Let me begin by making clear what I said to Mr. Neal and others during House debate last week.  I agree inversions are a problem.  I agree there is something wrong with a tax code which allows American companies to reduce their taxes by moving their nominal residence to another country.  And I agree that legislation to address this problem is something this Congress should and will take up.

Let me also make clear that my support for legislation to tackle the issue of inversions is not an endorsement of any of the bills which have been introduced to this point.  This hearing will give us a chance to evaluate the strengths and weaknesses of current proposals and examine whether other, more comprehensive approaches, are necessary.

Inversions are not a new phenomenon.  In fact, the first inversion to attract significant attention involved a Louisiana company in 1983.  Preventive legislation was enacted in response.

A decade later, Helen of Troy inverted in a differently structured transaction.  The IRS responded swiftly with new regulations.

Now, two decades after inversions first gained public attention, they are back in the spotlight.  The outcry from the press and the public has prompted legislators to introduce a slew of proposals to put a finger in the inversion dike. 

Inversions are motivated by two types of tax savings.  First, the inverted company generally structures its affairs so as to avoid U.S. tax on its global income, thereby getting around our worldwide tax system.  This has sometimes been referred to as "self-help territoriality."

Second, and perhaps even more concerning, inverted companies have engaged in a practice known as interest stripping to reduce U.S. taxes on U.S. income.  This occurs when the parent loans money to the U.S. subsidiary.  The interest payments made to the parent or other foreign affiliate are deducted from the subsidiary's income, reducing taxable U.S. income.  The payments received by the parent are either not considered taxable income or are subject to a very low tax rate.

Combined, these incentives provide significant tax savings to inverting companies but erode the U.S. tax base.   They also point out the danger of narrow legislative solutions.

Just as water will find another way through or over the dike, legislation which leaves in place these incentives but only places them further out of reach encourages clever tax professionals to respond by redesigning and repackaging these inversion transactions. 

So long as we are focused on the headline-grabbing inversions and not the underlying factors which prompt those moves, I am concerned we will continue to play catch-up with enterprising companies and their tax planners who find ways around the statute.

The fundamental problem, as identified by the Treasury, is the "juice" which makes inversions such an attractive option for many companies.  Existing barriers, such as toll charges on the shareholders of inverting companies under Section 367, are inadequate in some cases.  With stock prices depressed, and many institutional shareholders indifferent to this tax, this check on inversions is not as formidable as once thought.

These challenges suggest the need to think broadly and address not only the narrow issue of inversions but also the broader flaws in our tax code which make it attractive for long-established U.S. companies to invert.

I look forward to examining these issues with the witnesses today and to working with my colleagues in the days and weeks to come to craft legislation which responsibly removes the incentive for American companies to send their headquarters overseas.

It is now my pleasure to yield to my friend from New York, Mr. McNulty.