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Treasury Secretary Lew Calls for Retroactive Legislation to End Corporate Inversions

In a Washington Post op-ed this week, Treasury Secretary Jack Lew appeals to Congress to eliminate the practice of inversion, whereby a U.S. company acquires a foreign company and then uses its foreign address to claim tax status outside the United States. Secretary Lew notes that many recent media articles have reported a significant number of deals of this type are in the works.

The Secretary pushes for the President’s plan to stop inversions to be turned into legislation that would be retroactive to early May of this year. While the Secretary writes that there is nothing wrong with cross-border mergers done for economic efficiency, he states that companies exploiting this loophole in order to cut tax bills place a greater burden on small businesses and individual Americans to maintain taxpayer-funded infrastructure these companies continue to use.

This is only the latest proposed policy response to the practice of inversion, and it is important to note that while these efforts are being advanced by a Democratic Administration, it was Republicans in Congress that initially proposed an anti-inversion bill in the 108th Congress (2003/2004).

Addressing revenue losses and tax equity was their primary concern, and tax legislation aimed at restricting inversions was included in the American Jobs Creation Act of 2004 (P.L. 108-357), an omnibus tax bill addressing business and international tax issues. As the White House continues to press this issue, there is a chance that the politics surrounding inversions might become inflamed to the degree that there is pressure on the House and Senate to act, especially given that it's an election year.

Crowell & Moring’s public policy group is available to discuss the impact of potential anti-inversion legislation and will continue to monitor future developments.

Crowell & Moring LLP is an international law firm with approximately 550 lawyers representing clients in litigation and arbitration, regulatory and policy, and transactional matters. The firm is internationally recognized for its representation of Fortune 500 companies in high-stakes litigation, as well as its ongoing commitment to pro bono service and diversity, equity and inclusion. The firm has offices in Brussels, Doha, London, Los Angeles, New York, Orange County, San Francisco, Shanghai, and Washington, D.C.

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