Lew Says Decision Near on Corporate Tax Actions

WASHINGTON - Treasury Secretary Jacob J. Lew said on Monday that he would decide 'in the very near future' what regulatory action the Obama administration can take - given the partisan paralysis in Congress - to close some tax loopholes and reduce incentives for multinational corporations to incorporate in other countries to avoid taxes in the United States.

Mr. Lew did not give any further hints as to timing or specific options under review, and he took no questions after an address sponsored by the nonpartisan Tax Policy Center at its affiliated research organization, the Urban Institute.

The accelerating increase in so-called inversions - when a corporation expatriates by combining with a foreign company, even if its headquarters and many operations remain in the United States - has put pressure on Congress and President Obama to act because of the potentially huge losses to the Treasury.

But a divided Congress has not acted either on the comprehensive plan Mr. Obama proposed two years ago to overhaul the corporate code by closing loopholes and cutting the top rate to 28 percent from 35 percent, or on his more recent, limited proposal to stop inversions. He recently directed the Treasury Department to propose regulatory changes to make inversions less financially appealing to corporations like Mylan, Walgreen and Medtronic.

'The administration is cleareyed about the possibility that Congress may not move as quickly as necessary to respond to the growing wave of inversions,' Mr. Lew said. While many Republicans have condemned Mr. Obama's executive actions in other areas where Congress has not acted, Mr. Lew said that any regulations that Treasury imposes to alter the tax benefits of corporate expatriations 'will have a strong legal and policy basis.'

Still, Mr. Lew said the administration would prefer that Congress pass a law both to end tax-based inversions and, more broadly, to rewrite the tax code to make it simpler and less anti-competitive. 'Only a change in the law can shut the door, and only tax reform can solve the problems in our tax code that lead to inversions,' Mr. Lew said.

'There is nothing wrong' with mergers done for business advantages other than simply evading taxes, he said. But, he added, 'by effectively renouncing their citizenship but remaining here, these companies are eroding America's corporate tax base.'

'That means all other taxpayers - including small businesses and hard-working Americans - will have to shoulder more of the responsibility of maintaining core public functions that everyone, particularly U.S. businesses, depends on,' Mr. Lew said.

Under Mr. Obama's legislative proposal, which would be retroactive, a corporation could not claim foreign residence if it is managed in the United States and conducts significant business here, not in its new home, and if shareholders of the foreign-based firm own less than 50 percent of the merged corporation. (Currently the ownership standard is 20 percent.)

House and Senate Democrats, and a few Republicans, have worked on legislation; one measure, by Senator Charles E. Schumer, Democrat of New York, reportedly would limit deductions for interest on debt for cross-border mergers since 1994. No legislation, however, is likely before Congress quits soon for the fall campaigns.

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