Hillary Clinton Announces Plan to Crack Down on Inversion Deals

Hillary Clinton on Wednesday will tout a multistep plan to crack down on company mergers that move taxable profits outside the United States, an aide said, calling in Iowa for stricter regulations in the wake of the criticized Pfizer-Allergan merger.

Her plan calls for using executive authority to punish companies that engage in “earnings stripping,” a strategy commonly used by companies that move their tax addresses outside the United States.

Clinton will “crack down generally on companies that shift profits overseas in order to avoid paying their fair share of taxes,” according to an aide.

The $160-billion Pfizer-Allergan merger is the latest in a series of high-profile inversions that move U.S. companies’ headquarters overseas to countries like Ireland, Canada and Bermuda, where they can avoid paying U.S. taxes. Examples include Burger King, which acquired Tim Hortons last year for $11.4 billion to move its headquarters to Canada, and medical device maker Medtronic purchase of Dublin-based Covidien for $43 billion.

The mergers have sparked anger back home, and President Obama has urged Congress unsuccessfully to curb overseas moves. “We’ve recently seen a few large corporations announce plans to exploit this loophole, undercutting businesses that act responsibly and leaving the middle class to pay the bill,” Obama said last year.

Clinton has said that Congress should stop inversions by requiring that a foreign entity purchasing a U.S. company control a 50 percent stake of the combined company. That raises the bar for gaining tax benefits through a merger: current law considers a U.S. firm to be expatriated if the foreign company has bought just a 20% stake. Clinton also said on Monday she supports an “exit tax” on untaxed overseas earnings of corporations that move their headquarters abroad.

The newest part of Clinton’s plan is closing the “earnings stripping” loophole. As president, Clinton would ask her Treasury Department to reclassify corporate debt as equity in order to block companies from exploiting the mechanism that lets them avoid paying US taxes. The Clinton campaign says that would raise $60 billion over 10 years.