Levin Introduces Legislation to Curb Corporate Tax Loopholes

May 17, 2016
Press Release
Bill Closes “Hopscotching” and “De-controlling” Loopholes Commonly Used by Foreign-Controlled U.S. Multinationals

WASHINGTON, DC – Ways and Means Committee Ranking Member Sander Levin (D-MI) today introduced the Protecting the U.S. Corporate Tax Base Act of 2016, a bill that would limit two tax loopholes commonly used by foreign-controlled U.S. multinational groups, like those formed through tax inversions and other foreign acquisitions. This bill is the third in a series aimed at curbing corporate tax loopholes. To read a summary of the bill, click here. To read the bill text, click here.

“Americans believe that the tax code is rigged against them, and when companies can use complicated loopholes to avoid paying their fair share of taxes, they’re not wrong,” said Rep. Levin. “By refusing to act to stop inversions and other tax avoidance maneuvers, Republicans in Congress are essentially saying that it’s okay for these companies to erode the tax base while forcing ordinary Americans to foot the bill. Congress must act immediately to close these outrageous loopholes and protect the U.S. tax base before it is completely eroded.”

The first loophole – known as “hopscotching” – allows a foreign parent company or foreign affiliate to use, tax-free, overseas earnings of foreign subsidiaries of U.S. companies – known as controlled foreign corporations (CFCs). The second loophole – known as “de-controlling” – enables foreign-controlled U.S. multinational groups to avoid U.S. taxes on the deferred earnings of CFCs by reducing the U.S. ownership of CFCs just below the level that subjects the foreign subsidiaries to U.S. taxation.

Treasury issued temporary regulations in April to prevent “hopscotching” by inverted companies. The “hopscotching” provision in the Protecting the U.S. Corporate Tax Base Act of 2016 is broader and would apply to U.S. companies that have inverted, as well as to U.S. multinational companies that have been acquired by foreign companies. The “de-controlling” provision was included in President Obama’s FY16 and FY17 budget proposals.

Read more about corporate tax inversions and previous bills introduced by Democrats in the House here.