Tax writers mull crackdown on U.S. companies headed for exits

House Republicans are considering cracking down on U.S. companies that move overseas while still selling their products to Americans, as part of their tax-rewrite plan due this week.

The exact approach, which would make good on President Donald Trump's repeated threats to punish companies "offshoring" jobs, is still unclear, but it has pharmaceutical giants and other companies on edge. Foreign-owned firms operating in the U.S. may also get swept up in any new rules.


One possibility would be requiring firms that pull up stakes and still sell their wares to American consumers to pay the full U.S. domestic corporate tax rate, instead of a minimal tax on foreign earnings lawmakers are considering.

The aim is to discourage businesses from heading abroad for lower taxes and prevent those that do from enjoying a tax advantage over competitors remaining in the U.S.

“We haven’t landed yet on how we’re going to do it,” said one House Republican lawmaker, speaking on condition of anonymity.

The framework of the Republican plan released last month by the "Big Six" congressional and administration negotiators promised — under the heading, "Stopping corporations from shipping jobs and capital overseas" — lawmakers would "incorporate rules to level the playing field between U.S.-headquartered parent companies and foreign-headquartered parent companies."

The approach would come with some political, and budgetary, appeal.

It would allow Republicans to say they're helping keep jobs in the U.S. — Trump has complained bitterly, for months, about U.S. firms going elsewhere. Any proposal would also likely generate budget savings, helping Republicans get the math behind their tax plans to work.

But it could potentially be very controversial. Some warn such a plan could violate international treaties and would surely be complicated, in part because lawmakers would have to draft rules to prevent companies from dodging the restrictions.

“To try to stop the abuse causes more complexity,” said the lawmaker.

The proposal comes as House Republicans prepare to unveil a sweeping tax reform plan Wednesday they hope to get to Trump’s desk by the end of the year.

The new rules would go alongside Republicans’ plans to create a foreign minimum tax designed to ensure companies pay at least some tax on their overseas earnings.

Some expect any new rules to look like ones proposed in 2014 by then-House Ways and Means Chairman Dave Camp as part of his own tax-reform plan. Companies moving elsewhere while still selling to U.S. customers — called "roundtripping" — would have faced special rules subjecting them to the full domestic corporate rate in Camp's plan, instead of paying a minimal tax on their foreign earnings, so they wouldn't reap any tax advantage by leaving the U.S.

Both the foreign minimum tax and Camp’s roundtripping rule were driven by Republicans’ plans to move to a so-called territorial tax system where the U.S. would no longer try to tax companies’ foreign earnings. Currently, multinationals are taxed on their worldwide earnings, though not until they bring that money back home.

Switching to a territorial system would mean companies, under the Republican tax plan, would face a 20 percent corporate tax on their U.S. earnings but no tax on their foreign earnings. That would give firms a big incentive to move abroad — exactly the opposite of what Republicans are trying to achieve.

So imposing a foreign minimum tax would reduce the gap between what companies pay here and elsewhere, and a roundtripping rule would amount to an additional backstop.

Camp’s plan did not address foreign companies operating in the U.S., which led to complaints that his roundtripping proposal would put American firms at a disadvantage to their foreign competitors. One answer to that criticism would be to expand any rule to apply to foreign firms as well — which is worrying a trade group representing the companies.

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“We want to ensure attracting international companies to the United States is part of the calculus as legislators move toward making a more competitive tax code,” said Nancy McLernon, head of the Organization for International Investment, which represents Toyota, Nestle and Samsung, among others.

“What’s important for policymakers to understand is we’re talking about companies in the United States — there is no ‘us versus them’ for the American worker,” she said. “Both are us.”

“The success of a Nestle in the United States is important to U.S. employment," she added.