Letter to Jacob J. Lew, Secretary of the U.S. Treasury

Abstract

A number of U.S. companies are either exploring or have completed corporate inversions that move their parent company for tax purposes from the U.S. to some more friendly tax jurisdiction. It has been reported that many financial advisors, bankers, etc. are advising their corporate clients to consider such a move.

Considering the present lack of any action within Congress to stem this corporate exodus, President Obama and Secretary Lew of the U.S. Treasury Department are reviewing available options not requiring legislation that could help eliminate the economic incentives that drive corporate inversions.

Briefly stated, this letter to Secretary Lew describes two approaches not requiring legislation that haven’t been in recent discussion. Both approaches will help discourage inversions as well as some of the profit shifting that has so successfully created many billions of “stateless income”. In addition, these approaches would help reduce some earnings stripping by foreign-based multinational groups.

Keywords: inversion, effectively connected income, U.S. trade or business, profit-shifting, earning stripping

JEL Classification: H21, H25, K34, E62