Calling for a new sense of "economic patriotism," U.S. Treasury Secretary Jacob Lew urged Congress on Wednesday to take steps quickly to discourage U.S. companies from moving their tax domiciles abroad to avoid federal taxes.
"Congress should enact legislation immediately," Lew told a business conference in New York hosted by cable television channel CNBC. "We should have some economic patriotism here."
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Lew's remarks came amid a wave of corporate deals known as inversions, in which a U.S. company shifts its tax home base to a lower-tax country by combining with a company based in that country. Popular destinations are Ireland, Britain, Switzerland and the Netherlands.
The deals are still rare, but a flurry of them in recent months has prompted concern in Washington. Medical technology group Medtronic Inc plans to buy Dublin-based rival Covidien Plc and shift its tax home base to Ireland.
Drugstore chain Walgreen Co is weighing a possible inversion. Drugmaker Pfizer Inc's bid in April to buy UK rival AstraZeneca Plc was structured as an inversion. That deal fell through, but it drew attention to inversions.
Damage could be 'permanent' says Jamie Dimon
"We have a corporate tax policy which is driving capital and companies overseas," JPMorgan Chase & Co Chief Executive Jamie Dimon, one of the nation's most influential bankers, said on a conference call with reporters on Tuesday.
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"We just really need to fix this sooner, rather than later, because some of this damage is permanent," he said. "These people are building R&D plants overseas. They are sending engineers overseas."
While inversions sometimes result in U.S. job losses, they often involve setting up a tax domicile abroad that is little more than a small office, while keeping the bulk of a business's executive and research operations in the United States.
U.S. protection without paying U.S. tax
In a letter to members of Congress on Tuesday, Lew said corporations that do inversions want to keep the advantages of being in the United States without paying.
These advantages include "protection of intellectual property rights, our support of research and development, our investment climate, and our infrastructure, all funded by various levels of government," he said.
President Barack Obama's 2015 budget, introduced in March, proposes making inversions more difficult by raising the minimum levels of foreign ownership required. Congressional Democrats have made similar proposals. Senator Carl Levin of Michigan and other Senate Democrats have called for a two-year moratorium on inversions.
Lew wrote in his letter, obtained by Reuters, that legislation should be made retroactive to May 2014.