Obama: Tax-fleeing companies ‘wrong’

LOS ANGELES – President Barack Obama urged Congress on Thursday to end a controversial practice that allows U.S. companies to relocate abroad to avoid paying billions of dollars in federal taxes.

The practice, called inversion, occurs when large U.S. corporations merge with smaller foreign companies, moving their headquarters to low-tax countries such as Ireland while making only minimal changes to their operations. The U.S. company, though, becomes a subsidiary and saves on taxes.

“They’re technically renouncing their U.S. citizenship. Some people are calling these companies corporate deserters,” Obama said at Los Angeles Trade Technical College, which helps the unemployed pursue health care professions. “I don’t care if it’s legal. It’s wrong.”

The White House estimates inversions could cost the government as much as $17 billion in lost tax revenue during the next decade. Obama wants the money to be spent on job training programs instead.

“You don’t get to pick the tax rate you pay, and neither should these companies,” the president said.

He initially called for closing the loophole in his budget, and he wants to make the fix retroactive to May to avoid incentives for companies to rush to take advantage of the “loophole.” Bills have been introduced in both the Republican-controlled House of Representative and the Democrat-led Senate to address the issue.

But while some Republicans have expressed support for limiting inversions, House Speaker John Boehner, R-Ohio, made it clear Thursday he had little interest in a stand-alone fix for the problem and favored instead the GOP’s broad revamp of U.S. corporate tax laws. Boehner frowned on the same proposal earlier this year.

“Until the White House endorses our tax reform plan or convinces Senate Democrats to act, every pink slip from companies moving overseas may as well be signed, ‘President Barack H. Obama,’ ” Boehner spokesman Michael Steel said.

An aide to Senate Minority Leader Mitch McConnell, R-Ky., noted that at least four Democrats on the Senate Finance Committee said they’re not ready to back the change.

Treasury Secretary Jack Lew wrote to Senate Finance Committee Chairman Ron Wyden, D-Ore., last week, pledging to support efforts to curb inversions.

“We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes,” wrote Lew, noting these firms seek to benefit from their business location in the United States, the rule of law, intellectual property rights, infrastructure and the U.S. investment climate.

White House officials declined to name any specific transactions, acknowledging “sensitivity in singling out specific businesses.”

Corporate inversions appear most popular in the medical and pharmaceutical fields, where companies purchased smaller players in places such as Ireland or the Netherlands, countries known for lower corporate taxes.

Among companies to do so recently are drug makers Mylan Inc. in Pennsylvania and Chicago’s AbbVie. Minnesota-based medical device manufacturer Medtronic Inc. would be the largest U.S. company to do so, and it touched off a firestorm recently with its $42.9 billion acquisition of the Irish firm Covidien PLC.