After Killing The Biotech Bubble, Congress May Just Have Ended M&A Mania

Having pricked the Biotech bubble with the simple questioning of the ballooning prices of drugs, it appears Congress may be well on its way to bursting the M&A Mania as Senator Carl Levin pushes his anti-inversion legislation by increasing, once again, the complexity of the tax code:

  • *SEN. LEVIN SAYS U.S. FACING `FLOOD OF TAX AVOIDANCE’
  • *LEVIN BILL INCLUDES TWO YEAR MORATORIUM TO ALLOW FOR TAX REVAMP
  • *LEVIN BILL RAISES THRESHOLD FOR INVERSIONS TO 50 PERCENT
“This is about leveling the playing field and rooting out flagrant tax abuse in our system that could lead to billions of dollars of lost revenue,” said Sen. Tim Kaine, D-Va.

“In order to fully restore budget certainty, we need to look at abuses in the tax code as much as spending. The fact that companies can change their tax liability to low-tax jurisdictions on paper while maintaining operations and ownership in the U.S. is unacceptable and I’m pleased to join my colleagues to introduce this important fix.”

Well, we’re glad they know what’s best for all of us…

As Bloomberg summarizes,

Sen. Carl Levin, D-Mich., proposing legislation imposing 2-year moratorium on inversions, raising shareholder threshold to 50%, according to summary of legislation ( adramatic shift from current law where shareholders of non-U.S. company must own 20% of combined company)

It’s become increasingly clear in recent weeks that a flood of tax avoidance by multinational corporations is looming,’’ Levin tells reporters

Levin responding to at least 13 cos. that have conducted inversion mergers since 2011 to move headquarters out of U.S. into lower-taxed jurisdiction

Sen. Finance Cmte Chairman Ron Wyden has said he also wants to limit inversions retroactive to May 8; House Speaker Boehner said earlier today inversions are one reason tax overhaul is needed

Carl Levin’s Fill Statement:

Summary of the Stop Corporate Inversions Act of 2014

Tuesday, May 20, 2014

The Stop Corporate Inversions Act of 2014 would significantly reduce a tax loophole that allows U.S. companies  that merge with foreign companies to reincorporate offshore in lower-tax jurisdictions – known as an “inversion” – to avoid being subject to U.S. tax on their overseas earnings. 

Under current U.S. tax law, the merged company is treated as a foreign company if more than 20 percent of the stock of the merged company is owned by stockholders who were not stockholders of the U.S. company or if the merged company has at least 25 percent of its employees, sales and assets where it is incorporated.

The Stop Corporate Inversions Act of 2014 increases the needed percentage change in stock ownership from 20 percent to 50 percent and provides that the merged company will nevertheless continue to be treated as a domestic U.S. company for tax purposes if management and control of the merged company remains in the U.S. and either 25 percent of its employees or sales or assets are located in the U.S.

 

The bill provides a two year moratorium on inversions that do not meet the stricter tests in the bill so that Congress can consider a long-term solution as part of general corporate tax reform.  But we can’t wait for tax reform to stop the bleeding.  If we continue to wait, we risk more American companies opting out of the U.S. corporate tax base by reincorporating in lower-tax foreign jurisdictions under the much more permissive current law applying to inversions.

The president’s FY15 budget contains a proposal to close this loophole, and the Stop Corporate Inversions Act largely mirrors that proposal.

While the US makes the tax code so complex everyone wants to get out of the country, in italy the PM wants to simply it so much people can file by text message:

Premier Matteo Renzi said Tuesday that the government’s planned simplification of Italy‘s fiscal system should make it possible for people to pay their taxes via mobile phone text messages. “I’m convinced that if we work at it, we can make it possible to pay them (taxes) via an SMS,” Renzi said. “Italy is a country that makes simple things complicated, but paying taxes must be simpler”.

Renzi has embarked on an ambitious reform programme of institutional and economic reforms since unseating Enrico Letta, his colleague in the centre-left Democratic Party (PD), in February to become Italy’s youngest premier at 39.

 

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