Senate Finance Committee Chair Ron Wyden, D-Ore., has pledged to work with ranking minority member Orrin Hatch, R-Utah, to introduce bipartisan legislation to address the recent rise in corporate inversions when Congress returns to work in September.
Wyden's announcement came in response to a new proposal from Finance Committee member Charles Schumer, R-N.Y., aimed at limiting the benefits of earnings stripping. Schumer's proposed legislation would:
- Repeal the debt-to-equity safe harbor so that limitations on the interest expense deduction will apply to all inverters regardless of their financial leverage
- Reduce the permitted net interest expense from 50% of a subsidiary's adjusted taxable income to no more than 25%
- Repeal the interest expense deduction carryforward and excess limitation carryforward for companies that result from inversions
- Require the U.S. subsidiary to obtain IRS pre-approval annually on the terms of its related-party transactions for 10 years immediately following an inversion
Wyden said addressing earnings stripping is a "key piece of any sound solution" but stopped short of endorsing Schumer's bill. Hatch has expressed openness for enacting legislation to restrict inversions outside of tax reform, but bipartisan agreement may be difficult. Hatch said he would consider legislation only if it's revenue neutral and not punitive or retroactive. Wyden has expressed support for legislation that would strengthen the anti-inversion rules in Section 7874 retroactively from May 2014.
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