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CPA group counters Obama on corporate inversions [Westchester County Business Journal (NY)](Westchester County Business Journal (NY) Via Acquire Media NewsEdge) President Barack Obama pointed a finger at the accounting industry for the rise in widely criticized corporate inversions, but the president of the New York State Society of Certified Public Accountants said he thinks the chief executive should look to those in his former professions - law and lawmaking - before laying blame. Corporate inversions are transactions in which an American company reincorporates overseas to escape paying corporate taxes to the federal government. They are legal, codified in the federal tax code, and drawing attention recently as more companies seek to ship their headquarters overseas to increase profits for shareholders. In a press conference Aug. 6 following the U.S.-Africa Leaders Summit, responding to a question from Bloomberg's Margaret Talev, Obama said, "You have accountants going to some big corporations - multinational corporations but that are clearly U.S.-based and have the bulk of their operations in the United States - and these accountants are saying, you know what, we found a great loophole - if you just flip your citizenship to another country, even though it's just a paper transaction, we think we can get you out of paying a whole bunch of taxes. Well, it's not fair. It's not right." Firing back in a press release, Scott Adair, president of the state CPA society said, "I believe President Obama should be aware that U.S. corporations hire accountants for their distinct ability and expertise in seeing that clients fulfill their tax obligations as required by the laws adopted by Congress. In fact, it is a CPAs' unique ability to legally navigate an extraordinarily complex tax code that makes CPAs' services so valuable to their individual and corporate clients." Corporations ranging from fruit giant Chiquita to pharmaceutical firms Mylan and AbbVie and pharmacy chain Walgreen Co. have recently sought to increase profits by inverting. Walgreen Co. later decided against inverting through a merger with European drugstore chain Alliance Boots after facing backlash from investors and shareholders. "Foreign corporations are still subject to taxes on earnings derived from U.S. sources," explained Philip G. Cohen, a professor of legal studies and taxation at Pace University's Lubin School of Business and a retired vice president of tax and general tax counsel for Unilever United States Inc. Those same corporations, however, cannot be taxed on foreign earnings, and therein lies the benefit in an inversion transaction - corporations that do a large portion of business overseas reduce their tax bills by making sizable portions of their income untouchable by the Internal Revenue Service. Federal tax laws comprise more than 73,000 pages, according to legal publisher Wolters Kluwer, nearly triple the amount in 1984. But the short section dealing with corporate inversions runs just over 1,500 words. That section, titled "rules related to expatriated entities and their foreign parents," creates a loophole that enables corporations to avoid paying corporate taxes by merging with a foreign corporation as long as ownership of more than 20 percent of the corporation resulting from the merger remains overseas. Legislation has been introduced in the Senate to close the loophole. Sen. Carl Levin, a Democrat from Michigan, and 13 of his colleagues introduced the Stop Corporate Inversions Act of 2014 in May. "These transactions are about avoidance, plain and simple," Levin said in a statement announcing the bill's introduction. The bill would require more than half of the ownership of a post-merger corporation to be held overseas to gain the same tax avoidance benefits currently available to companies that have more than 20 percent of their shares held abroad. Levin, in a floor statement to the Senate on May 20, said the legislation is necessary "because we simply cannot wait. Multinationals are exploiting this loophole today. Meanwhile, hard-working American taxpayers and small business owners, and even large corporations that have to compete with the tax avoiders but believe that inversion is wrong for their companies and for America, see their tax burden rise while our national debt grows." Adair said the president should blame Congress "for creating the very loopholes he vilifies." "Sustainable corporate tax reform is the elephant in this room," Adair said in the state CPA society press release. "President Obama's goals would be best served by looking to his fellow lawmakers if he wants a solution to this problem. The accounting profession stands ready to help." Cohen, the Pace business professor and retired tax attorney, said he agrees with Adair. "It's not the accountants' fault; it's Congress' fault for not doing anything," Cohen told the Business Journal. "Accountants and tax attorneys are paid to undertake legitimate tax planning - it's Congress job to curtail abuses and close loopholes." Corporate officers and directors have a fiduciary duty to shareholders to increase profits, and one easy way to do that is ,to lower a corporation's tax liabilities, Cohen said. He noted that if the loophole remained open, a snowball effect could take place, where more and more corporations invert, increasingly reducing government revenue from corporate taxes. "I don't fault business leaders for that," he said. (c) 2014 Westfair Communications |