“American” corporations that “invert,” or establish offshore domiciles in order to avoid payment of U.S. taxes, are still feeding at the government trough. They have benefited from American laws, courts and infrastructure, becoming obscenely wealthy – yet refuse to return the favor to We The People. And who and what are enabling this? One of the biggest violators is the Obama Administration, as the lame duck executive who ran on “Hope and Change” now reveals his true corporatist colors.
Last year the corporate practice of “inversion” became an issue in the wake of several corporations announcing their intention to locate offshore. At the time, President “Hope and Change” called such actions “unpatriotic.” Later, the Secretary of the Treasury, Jack Lew, instituted new regulations that would penalize such tax avoidance and offset some of the losses.
It wasn’t the first regulatory effort attempt to ban inverted companies from profiting on U.S. government contracts. In the wake of the World Trade Center attacks of September 2001, Congress passed a law denying federal contracts to companies locating overseas for the purpose of tax avoidance. Known as the “American Jobs Creation Act of 2004,” the law became part of Section 7874 of the Internal Revenue Code. According to tax attorney and consultant Jefferson Van der Wolk, the law was supposed to have “effectively negated the tax benefits of inversions into tax haven parent corporations where the ownership of the group was not significantly affected by the restructuring.”
However, that law contained numerous flaws and loopholes. For example, if there was a “change of ownership,” or “substantial business activities in the foreign corporation’s country of incorporation,” the inverted company was off the hook. On the other hand, the law authorized the Treasury Department to write additional regulations as needed in order to prevent companies from engaging in such tax avoidance tactics.
Recently, Bloomberg News obtained information from the Department of Homeland Security. The information concerns a document originally coming from Ingersoll-Rand, a manufacturer of industrial equipment founded in New York in 1905. Since 2002, the company has relocated twice in order to avoid paying U.S. taxes. Currently, Ingersoll-Rand corporate headquarters are located in Ireland. Corporate attorneys for Ingersoll-Rand argue that current U.S. trade agreements invalidate Treasury Department regulations. One of their arguments: Ingersoll-Rand isn’t an American corporation anymore, so the law doesn’t apply.
You read that correctly. According to its corporate logic, Ingersoll-Rand became a Bermuda company in 2002. When it relocated to Ireland, it was still a Bermuda company, not a U.S. one – meaning it is no longer bound by U.S. tax regulations. Furthermore, corporate attorneys for Ingersoll-Rand argue that under World Trade Organization’s Government Procurement Agreement, member states are prohibited from discriminating against other members states’ companies when it comes to awarding government contracts.
The Department of Homeland Security is going along with all of it – and since President Obama is in charge, responsibility lies squarely on his shoulders. Significantly, while Homeland Security furnished general information about its decision to Bloomberg, it refused to release the actual document and demanded that the media outlet cease its requests under the Freedom of Information Act. The reason given: “confidential information” contained in those documents “could damage Ingersoll-Rand.”
The Department of Homeland Security’s decision is creating loopholes of biblical proportions. It is opening the door for inverted American corporations currently ineligible for government contracts to become eligible once more – simply by inverting a second time.
The estimated cost to the U.S. Treasury: nearly $20 billion. And guess who is going to be picking up the tab for the difference? (Hint: it won’t be corporations or the “One-Percenters.)