New House bill tackles taxes and infra investment

A new bill recently introduced by Congressmen Van Hollen and Levin addresses the Highway Trust Fund’s imminent insolvency by redefining inverted corporations.

The House of Representatives has new proposed legislation that would address the issue of infrastructure investment, specifically in the transportation sector, by making it more difficult for US companies to move their tax home to a foreign jurisdiction.

Representative Chris Van Hollen, a Democrat from Maryland and a ranking member of the House Budget Committee, recently introduced HR 4985, along with fellow Democrat Congressman Sandy Levin, a ranking member of the Ways and Means Committee.

The Stop Corporate Expatriations and Invest in America’s Infrastructure Act, as the bill is also known, would increase the percentage of ownership required for a company to qualify as an inverted domestic corporation. Under current law, a US company that acquires or is acquired by a foreign company can re-incorporate abroad if at least 20 percent of the new combined corporation is owned by historic shareholders of the US corporation or in the case of a partnership, interest owners of the partnership.

The new bill raises that percentage to 50 percent. However, aside from the ownership threshold, under HR 4985, a corporation would still be considered a US entity if its executive officers and senior management are based in the US or if 25 percent of its employees – either in terms of number or compensation – or 25 percent of the group’s assets are located in the US.

The savings that would result by reducing the number of US corporations that move their tax base abroad, thus paying fewer taxes in the US, would be used to replenish the Highway Trust Fund, which is expected to run out of funds in the next few weeks.

“It [the bill] would raise $19.5 billion in revenue over 10 years and keep the Trust Fund solvent as Congress works on a long-term funding solution,” Congressman Van Hollen’s office said in a statement.

“The Highway Trust Fund will start running dry in August if we fail to act, threatening hundreds of thousands of jobs,” Van Hollen said.
Levin, the bill’s co-sponsor, had introduced in May, the Stop Corporate Inversions Act of 2014, on which HR 4985 is based.

According to material posted on the House Ways and Means Committee website, there have been more than 40 corporate inversions since 2004 when Section 7874 of the Internal Revenue Code was enacted, which set the ownership threshold at 80 percent as a means to discourage expatriations.

Both bills, which seek to amend Section 7874, would apply to inversions completed after May 8, 2014.

Senator Carl Levin, Sandy Levin’s younger brother, introduced a companion version of the Stop Corporate Inversions Act of 2014 in the Senate, also in May.

Solutions to replenish the Highway Trust Fund, which was established in 1956 to fund the country’s interstate highway system, have been at the centre of discussions in recent months from President Barack Obama urging Congress to pass a reauthorization transportation bill to warning Congress that he will issue executive orders if the legislature fails to act in time.