Restrict “inversions” and related transactions that let companies forego their U.S. identity to lower their taxes, through both Congressional and regulatory action. Clinton’s plan will call on Congress to prevent “inversions” and end transactions like the Pfizer-Allergan deal. This includes imposing a commonsense 50% threshold for foreign company shareholder ownership after a merger before an American company can give up its U.S. identity, and an “exit tax” to ensure multinational companies that change their identity pay a fair share of the U.S. taxes they owe on earnings stashed overseas. If Congress has not acted to address inversions and related loopholes, Hillary is also calling for Treasury to use its full legal authority to prevent inversions and restrict the tax loopholes they allow, including cracking down on “earnings stripping,” one of the key benefits of inversions.
Use the proceeds to invest in long-term growth and jobs in the United States. Clinton’s plan will use the revenue from closing loopholes to help drive growth and job creation here in America. That means strengthening research and development; rewarding companies that bring good jobs to the United States; and expanding support for advanced manufacturing, small businesses, and startups. And while preventing inversions is a first, immediate step that cannot wait, Clinton believes in the need for broader changes in the business tax code and will discuss her approach over the course of the campaign.
Entirely block inversions that are likely to be the most abusive through a 50% merger threshold. Today, a company can give up its U.S. identity to avoid taxes through a merger with a smaller foreign company where only a small stake of ownership – one-fifth of the combined company – goes to the foreign company’s shareholders. This is indefensible. Clinton’s plan would require that no U.S. company could pretend to be a foreign company to avoid paying U.S. taxes unless its merger partner is the same size or larger. And she would call for Congress to make this restriction retroactive to May 2014, following proposals introduced by Democrats in Congress and President Obama’s Treasury Department. In the past, Republican and Democratic presidents have signed or proposed retroactive legislation applying to inversions and other loopholes.
Ensure that companies leaving the U.S. pay an “exit tax” on what they owe on their overseas earnings. In addition to barring inversions between a U.S. company and a smaller foreign company, Clinton would call on Congress to impose an “exit tax” on the untaxed overseas earnings of multinational companies that leave the U.S. to avoid the taxes they owe on these earnings. Under the current system, U.S. companies can defer taxes on their overseas earnings until they bring the money back to the U.S. As a result, U.S. corporations hold trillions of dollars overseas, deferring the U.S. taxes that they owe. Companies that shift their residence abroad often have an advantage in using tax planning to access earnings stashed overseas without paying the taxes that are supposed to be paid when foreign earnings are accessed. Clinton believes that if a company does give up its U.S. identity, it should pay taxes on the unrepatriated profits that it made as a U.S. company, benefiting from U.S. infrastructure, our investments in human capital, and the efforts that the government makes on behalf of U.S. corporations – from basic research to enforcing trade treaties. When an American citizen renounces their citizenship, there are rules intended to make sure they pay the taxes that they owe. The same should be true for corporations’ unrepatriated offshore earnings.
Limit the ability of multinationals to engage in "earnings stripping". Multinational corporations use a practice called “earnings stripping” to shift profits from the United States to countries with lower tax rates, and to maximize high deductions in the United States. This loophole reduces the taxes they pay in the U.S. – putting them at an advantage over domestic and smaller competitors, and leaving others to pick up the burden. Earnings stripping is much easier for a foreign-based multinational to do. For instance, a foreign-based multinational can load up a U.S. subsidiary with debt through loans from one part of the company to another and claim a large deduction for the interest here in the United States – all while sending the interest income abroad to a country with low tax rates. This is one of the main benefits of inversions and related transactions, and potentially a benefit of the Pfizer-Allergan deal – making it easier to strip profits out of the United States. Ending the practice of earnings stripping would close a loophole that costs taxpayers as much as $60 billion over 10 years.
If Congress does not act, ask the Treasury Department to use its full legal authority to crack down on inversions and related transactions, including by restricting earnings stripping. For more than a year, Clinton, President Obama, and Democrats have called on Congress to take action. It would be far better if Congress were to act itself. However, if Congress does not do so, Clinton would ask her Treasury Department to use its full legal authority to restrict earnings stripping. She would also ask her Treasury Department to pursue any other measures within its legal authority to end related tax planning, such as further cracking down on ways that corporations, after leaving the United States, game the system to gain access to their unrepatriated earnings without paying a fair share of the taxes they owe.Reward research, innovation, and locating the good jobs of the future here in the U.S.. Clinton believes that America must compete to be the world leader in research and innovation, and the high-skilled, high-paying jobs of the future. Her plan will use the tax code to reward innovation and research at companies large and small, established and new. Over the coming weeks and months, Clinton will lay out her vision for public investment in basic R&D, and driving research in the private sector. America’s future depends on leading the world in innovation, and we need rising productivity to drive higher wages for workers over the long-run.
Offer incentives to create good-paying jobs and revitalize communities here in the U.S. Clinton will offer incentives to reinvest and revitalize communities here in the U.S., and create good-paying, high-skilled jobs. One example of the type of proposals Clinton would offer is a plan she released this week to offer a “Manufacturing Renaissance Tax Credit.” This proposal would make hard-hit communities facing a “downward spiral” of mass layoffs and closing plants eligible for a package of relief to encourage new capital and new investment and jobs, and refurbishing and repurposing facilities. She would make a version of this proposal available in hard-hit coal communities as well. And, she will have more to say on incentives to revitalize hard-hit communities and create good jobs.
Reward companies that bring jobs back and invest in the U.S. – and further crack down on shifting earnings and jobs overseas. Clinton will offer new proposals to provide support for companies that move jobs and production back to the U.S. from abroad. And, she will go further than her proposals on inversions and related transactions to crack down on loopholes that let corporations shift earnings and jobs overseas.
Close oil and gas loopholes and invest in clean energy. Already during this campaign, Clinton put forward a plan to make America a clean-energy superpower by installing half a million solar panels by the end of her first term, and by generating enough renewable energy to power every home in America within ten years. And her plan would be paid for by closing tax loopholes for oil and gas companies.
Simplify taxes for millions of small businesses – and allow small businesses to write off investments. Today, the smallest firms spend 20 times as much in money and hours filling out their taxes compared to their larger competitors. Over the coming weeks and months, Clinton will offer new plans to simplify tax filing for millions of small businesses and allow small businesses to immediately deduct expenses, letting them expand their investments, hiring, and growth.