Their proposal came in the wake of the drug company Pfizer's well-publicized attempt to shift its tax incorporation from the United States to what critics have labeled a "tax shelter" in the United Kingdom. (Pfizer's "final" offer to the British company AstraZeneca was reportedly rejected Monday.)
Led by Michigan Senator Carl Levin, the group introduced the Stop Corporate Inversions Act of 2014 to "significantly reduce a tax loophole" that allows companies to use partial foreign ownership to relocate to countries with lower corporate tax rates.
"These transactions are about tax avoidance, plain and simple," Levin said in a statement. "Our legislation would clamp down on this loophole to prevent corporations from shifting their tax burden onto their competitors and average Americans while Congress is considering comprehensive tax reform."
Under Levin's plan, U.S. businesses attempting to buy a foreign company and relocate their headquarters for tax purposes must meet a higher threshold of stock owned by the foreign firm. Currently, according to Levin's office, a company only needs 20% foreign ownership to relocate to the other country for tax purposes. Levin wants to raise that to 50%.
The legislation would also bar companies from shifting tax residence offshore "if their management and control and significant business operations remain in the United States." A group of nearly one dozen House Democrats released a plan in the House today that aligns with Levin's.
Levin's plan mirrors one contained in the budget proposal released by President Barack Obama earlier this year. Along with a plan put forward by Rep. Dave Camp, the Republican chair of the House Ways and Means Committee, Obama's budget was one of two proposals to overhaul the tax code released this year. However, despite apparent bipartisan support for tax reform, few observers believe any significant changes will be made to the tax code until after the midterm elections.
In his statement, Levin characterized his bill as an intermediary step that could be taken while more comprehensive tax reform remains tabled.
"The Treasury is bleeding red ink, and we can't wait for comprehensive tax reform to stop the bleeding," he said.
However, according to Bloomberg, which first reported Levin's proposal, the bill has little chance of passing because Republicans believe any changes to the tax code must be considered as part of a wider tax reform.