U.S. President Barack Obama on Thursday hammered U.S. companies that avoid federal taxes by shifting their tax domiciles overseas in deals known as "inversions" and called on Congress to pass a bill to curb the practice.
During remarks to a rowdy crowd at the Los Angeles Technical College, Obama promoted what he called "economic patriotism" and made clear he believed the companies that were engaging in such practices were not being patriotic. The president was in California on a three-day fund-raising swing for Democrats.
So-called inversion deals occur when a U.S. company acquires or sets up a foreign company, then moves its U.S. tax domicile to the foreign company and its lower-tax home country.
Nine inversion deals have been reached this year by companies ranging from banana distributor Chiquita Brands International Inc to drugmaker AbbVie Inc, and more are under consideration.
The transactions are setting a record pace since the first inversion was carried out 32 years ago.
"Even as corporate profits are higher than ever, there’s a small but growing group of big corporations that are fleeing the country to get out of paying taxes,” Obama said.
"They’re technically renouncing their U.S. citizenship, they’re declaring their base someplace else even though most of their operations are here. You know some people are calling these companies 'corporate deserters.'”
Obama said he did not begrudge companies making profits but said corporate tax evasion practices made it harder for the middle class - his target political constituency - to succeed.
Several Democrats have offered bills to curb inversions, which let companies cut their taxes primarily by putting foreign earnings out of the reach of the Internal Revenue Service.
Obama threw his weight behind the Democratic bills, calling for a rule change that would deem any company with half of its business in the United States to be U.S.-domiciled.
The proposed changes, already put forward in the president's annual budget, would be retroactive to May 2014 and implemented independently of moves to achieve broader tax reform.
Republicans prefer a change to inversions to be part of an effort to reform the U.S. tax code.
“Under President Obama, the United States has the highest corporate tax rate in the developed world. It doesn’t have to be that way: Comprehensive tax reform would reduce deductions and lower tax rates for everyone," said Michael Steel, spokesman for the Republican speaker of the House of Representatives, John Boehner.
The White House supports broad tax reform but argues that action on inversions should not wait.
"We need to stop companies from renouncing their citizenship just to get out of paying their fair share of taxes," Obama said. "We can’t wait for that. You shouldn’t get to call yourself an American company only when you want a handout from American taxpayers."
The issue is a prominent one in Obama's home state of Illinois. Walgreen Co, the largest U.S. drugstore chain, is considering moving its tax home base abroad with such a deal. Protesters in Chicago went to the company's flagship store on Thursday to rally against its plans.
[Image via Agence France-Presse]