Congresswoman Jan Schakowsky (D-Ill.) wrote: “Pfizer apparently tried to structure one such inversion deal with the Irish company Allergan, shifting its headquarters from the US to Ireland. According to Americans for Tax Fairness, Pfizer would loan $150bn in untaxed profits to Allergan and then avoid paying $35m in taxes owed in the United States.”
The world’s rich, well-connected elite play by a different set of rules from everyone else. The Panama Papers are the latest evidence of this, and the behavior they expose should come as a surprise to no one.
The real scandal here is not the rules people broke, but rather how the richest segment of the world population legally maneuvers to avoid paying their fair share of taxes. They avoid tax liabilities through dodgy offshore accounts and shell companies set up in countries that sell themselves as tax havens.
And these practices extend into the world’s political elite. If the prime minister of Iceland and his wife were holding millions of dollars in an offshore shell company while he was responding to Iceland’s financial crisis, we have to wonder in whose interest he was making those decisions.
It should also come as no surprise that efforts to limit the flow of money to tax havens have been consistently thwarted. If those in positions of power are themselves hiding money overseas, why would they work to stop this practice?
Multinational corporations have also been using clever legal maneuvers to avoid paying taxes for years. Through a practice known as inversions, major companies in the US have structured merger deals with foreign companies to reduce their tax liabilities. They change their official addresses and pay lower taxes on the profits they shift offshore. Meanwhile, they still operate predominately in the United States.
I introduced the Corporate Tax Dodging Prevention Act, HR 1790, to put an end to US corporations deferring payment of taxes owed on foreign income. It would also effectively limit the tax benefits of corporate inversions by treating foreign corporations managed and controlled in the US as domestic corporations for tax purposes.
Pfizer apparently tried to structure one such inversion deal with the Irish company Allergan, shifting its headquarters from the US to Ireland. According toAmericans for Tax Fairness, Pfizer would loan $150bn in untaxed profits to Allergan and then avoid paying $35m in taxes owed in the United States.
Offshore accounts, shell companies, and inversions benefit the richest individuals and corporations while cheating hardworking families. Sadly, many politicians around the world, including Republicans in the United States Congress, have refused to take any meaningful action to close these loopholes.
Closing international tax loopholes could lower budget deficits by billions of dollars and provide resources to invest in education and infrastructure projects that actually grow the economy. Yet many in Congress have ignored fixes to our tax code. Instead, they attempt to balance the budget on the backs of those who can afford it least – students, working families, and retirees.
Between these latest leaks and a long history of tax avoidance by corporations and wealthy individuals, it is no wonder that many people around the world feel angry that the game is rigged. When people work incredibly hard and follow the rules, they expect those in power to do the same.
We must act to hold corporate deserters and wealthy elites who cheat the system accountable. They receive the benefits of our infrastructure, our government-funded research and our workforce, and they need to pay their fair share of our public investments.
The US Treasury Department has taken first steps to curb inversions. The rules announced this week have already caused Pfizer and Allergan to terminate their pending deal. But the Treasury Department’s moves are no replacement for congressional action.
We also need to reward companies that play by the rules. I have proposed creating a Patriot Employer Tax Credit Act for businesses that avoid international tax loopholes, pay their workers good wages, and provide decent employee benefits. Unlike our current tax code that rewards bad behavior, changes like these would incentivize companies to do the right thing.
We need to take action now to restore trust in government and make sure that our tax code works for everyone – not just a well-connected few. Closing international tax loopholes would not only increase fairness but also provide resources to invest in education and infrastructure. That is how we move from a rigged game to an economy that works for everyone.