US Business Sues Government Over Inversion Ban

09.08.2016 -

In a lawsuit filed in a Texas district court, the US Chamber of Commerce and the Texas Association of Business are challenging the implementation by the national tax authority, Internal Revenue Service (IRS), of a new rule aimed at preventing so-called inversion deals that involve a US company moving headquarters abroad to save tax.

The business representatives said the move authorized by the administration of US President Barack Obama last spring just as Pfizer was poised to acquire Allergan and move headquarters to Ireland, is unlawful, as the administration overrode Congress. The government’s legislative arm, in which the opposition Republican Party has a majority, had refused to enact anti-inversion legislation.

IRS and the Treasury department of which it is a part “ignored the clear limits of a statute, and simply rewrote the law unilaterally. This is not the way government is supposed to work in America,” said the US Chamber’s president and chief executive, Thomas Donohue. In his view, “inversions are the natural consequence of America’s misguided policy of imposing high taxes on corporations, and then trying to export those taxes to income earned globally.

“Instead of breaking the rules to punish companies engaged in lawful transactions, Washington should just do its job and comprehensively reform the tax code,” Donohue  added. “The real solution is tax reform that lowers rates for all businesses, allowing American companies to compete globally and the United States to attract foreign investment.”

Lily Fu Claffee, chief legal officer of the US Chamber, said the government “steamrolled over the Administrative Procedure Act, which requires that an agency provide interested parties with notice and an opportunity to comment before a rule becomes effective,” while offering no justification.

In announcing last week that Pfizer is rethinking plans to split into two companies, CEO Ian Read commented that, alongside share valuation questions, US politics could play a role in the decision.