We urge you to vote no on H.J. Resolution 54, a Republican proposal to repeal Treasury's finalized debt-equity regulations issued under Section 385 of the tax code. These regulations are intended to combat aggressive corporate tax planning techniques that, rather than serving an economic purpose, are used by some corporations to avoid taxes.
Treasury took these important steps amidst the refusal of Republicans in Congress to address the wave of corporate "inversions," whereby a U.S. company reincorporates abroad to lower its tax bill. Using existing authority under Section 385 of the tax code, these regulations reduce one of the major tax benefits of undergoing an inversion by curtailing a tax avoidance strategy known as "earnings stripping."
While these measures have not stopped every inversion, once they were announced, U.S. drug maker Pfizer immediately canceled its inversion plans to become a foreign company by merging with Allergen, a maneuver that would have cost the U.S. Treasury an estimated $35 billion.
When the draft debt-equity rules were announced in April of last year, members of Congress from both parties raised concerns that the rules had the potential to adversely affect ordinary business transactions that lacked a tax avoidance motive. Treasury made extensive revisions to its original draft in order to address these concerns.
By moving to repeal Treasury's anti-earnings stripping rules, Republicans in Congress will open the door to more companies renouncing their U.S. citizenship for tax purposes, while still reaping the benefits of doing business in America -- a tax practice President Trump railed against on the campaign trail. By invoking the Congressional Review Act, Republicans will block Treasury from crafting any more regulations to tackle this type of tax avoidance. We urge you to vote no on this Joint Resolution.