President Urges End To Corporate Inversions

In his State of the Union speech, President Obama pledges to “close tax loopholes,” including his continuing efforts to ban U.S. firms from moving their tax headquarters overseas in corporate inversion deals. On the same day Democratic legislators introduced a bill to stop corporate inversions.

President Obama reaffirmed his push to stop U.S. firms from using acquisitions to shift their corporate headquarters overseas and lower their tax rates as part of his general plan to “close loopholes” in the tax code during his Jan. 20 State of the Union address.

“For far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight," the president said. “Let’s close loopholes so we stop rewarding companies that keep profits abroad, and reward those that invest in America.”

So-called corporate inversions have become a common strategy in the drug industry, including Perrigo Co. PLC re-incorporating in Ireland through its 2013 acquisition of Irish specialty pharma Elan Corp. PLC (Also see "Perrigo’s Irish Move Sets Stage For International Boost, Net Revenue Gain" - Pink Sheet, 2 Aug, 2013.).

Obama is on record for labeling such moves by large U.S. firms as “unpatriotic.” In July 2014 at Los Angeles Technical College, he said a small but growing group of big corporations are “fleeing the country to get out of paying taxes,” labeling them “corporate deserters.”

Tax-inversion relief from higher U.S. rates also figured in Pfizer Inc. bidding to acquire U.K. firm AstraZeneca and in AbbVie Inc.’s singed-but-not-closed $53.3 billion acquisition of Shire PLC until the Treasury Department made policy changes in September 2014 and eliminated some of the techniques inverted companies use to access overseas earnings of foreign subsidiaries without paying U.S. tax (Also see "Inversion Crackdown: Does It Spell The End For Pfizer/AstraZeneca?" - Pink Sheet, 6 Oct, 2014.).

The president champions Treasury’s plan that reduces the appeal to companies of moving their headquarters overseas to gain tax breaks. The Treasury rule makes loan arrangements that are used to transfer funds between subsidiaries subject to U.S. taxes, and would make inversion transactions more challenging by strengthening certain ownership requirements.

President Obama’s goal to stop corporate inversions is proposed in legislation Democrats introduced in the House and Senate. The “Stop Corporate Inversions Act of 2015” was introduced on Jan. 20 in the House by Ways and Means Committee ranking member Sander Levin, D-Mich., and member Lloyd Doggett, D-Texas, and in the Senate by majority whip Richard Durbin, D-Ill. and Sen. Jack Reed, D-R.I.

Current law prohibits an inversion – for tax purposes – if shareholders of a foreign company would own 20% or less of a new combined corporation. The legislation requires that shareholders of a foreign company own at least 50% of the combined businesses.

Also, if a foreign company already is managed and controlled within the U.S. and does significant domestic business here, a U.S. firm cannot invert by acquiring that company.

The president also used his State of the Union remarks to cheerlead for innovative medical discoveries, including prosthetics and to promote “more effective global efforts to prevent future pandemics” such as the Ebola virus (Also see "Drug Claim Symptoms Spread Among Supplement Marketers Targeting Ebola Fears" - Pink Sheet, 26 Nov, 2014.). In particular, he launched the Precision Medicine Initiative that will include investments in genomics and personalized medicine research.

Obama also championed escalating protections against hackers involved in corporate thefts, a growing concern in the health care arena ( (Also see "Hack Attack On Hospital System Highlights Need For Device Cybersecurity" - Medtech Insight, 20 Aug, 2014.) and (Also see "Legacy Devices The Weak Link In Cybersecurity Fence" - Medtech Insight, 24 Oct, 2014.)).