Top Senate Democrats Charles Schumer, D-N.Y., and Richard Durbin, D-Ill., introduced Wednesday legislation to curb the recent spate of corporate inversions, specifically targeting the practice of earnings stripping.
Schumer and Durbin cited the need to deter American companies like Burger King from inverting and cited a recent Barclays report that estimated that if Walgreens had inverted, its total savings would have been $797 million annually, 98% of which would have been attributable to debt interest-related earnings stripping.
The two senators called earnings stripping "one of the most egregious practices of corporate inversions," as the practice involves inverted companies loading "their U.S. subsidiary up with excessive debt that is 'owed' to the foreign headquarters so they can deduct interest payments on this debt, further allowing the company to avoid paying U.S. taxes."
The Schumer-Durbin legislation is the first Senate Democratic proposal to address the practice of earnings stripping by companies that move their domicile overseas, and the senators say it will work "in harmony" with efforts by Senate Finance Chairman Ron Wyden, D-Ore., and Sen. Carl Levin, D-Mich., to put together a comprehensive package of legislation to address corporate inversions.
