In the wake of a rare tactical victory for the White House, Barack Obama on Wednesday evening defended his threat to use controversial presidential powers to prevent companies from avoiding US taxes.
In his first public comments on the subject since Walgreens amended a takeover deal that would have moved the enlarged company to a lower tax jurisdiction in the UK or Switzerland, the president warned other US companies considering so-called “tax inversion” strategies that he would look at fresh ways to take executive action to clamp down on the growing practice.
Although the administration’s legal authority to change tax rules without legislation from Congress is limited, the threat of White House interference hung over Walgreens’ takeover talks with smaller UK partner Alliance Boots and appears to have been a major factor in the company’s decision to keep the combined group’s headquarters in Chicago after it completes the deal.
Attempts to tackle the issue in Congress are stalled and Republicans have attacked Obama’s growing use of executive action in place of legislation as a breach of the constitution, and launched a lawsuitagainst him out of the House of Representatives over the issue.
At a press conference in Washington on Thursday, an undeterred president said he would continue to seek to counter future inversion strategies just as aggressively and stood by his use of executive action as a tactic to deal with Republican opposition in Congress.
“We can’t solve the entire [tax inversion] problem administratively, but what we are doing is examining, are there elements to how existing statutes are interpreted by rule or by regulation or tradition or practice that can at least discourage some of the folks who may be trying to take advantage of this loophole?
“We don’t want to see this trend grow. We don’t want companies who have up until now been playing by the rules suddenly looking over their shoulder and saying, you know what, some of our competitors are gaming the system and we need to do it too.”
The successful threat of executive action in the wake of the initial Walgreens proposal is also minor victory for a small group of Democratic senators who have been campaigning, hitherto unsuccessfully, against the elaborate strategies used by multinationals to reduce their exposure to US corporation taxes.
Senators Dick Durbin, Elizabeth Warren and Jack Reed wrote to Obamaearlier this week asking him to step in after they failed to make progress before Congress broke for its summer recess.
“Inverted corporations take advantage of all the things American tax dollars provide – from tax credits for research and development, investments in transportation infrastructure, and strong patent and copyright protections, to profiting from taxpayer-supported programs like Medicare and the Veterans Health Administration,” they wrote.
“Yet, these companies claim to be foreign corporations when it’s time to pay their tax bill – denying the United States billions of dollars in tax revenue and thereby increasing the tax burden on other US taxpayers.”
Senator Carl Levin has led similar efforts to expose other elaborate tax avoidance strategies by US multinationals such as Caterpillar and Apple.
But the Walgreens decision marks a rare defeat for investment banks and advisers who have encouraged ever more aggressive strategies to minimise their clients US tax liability.
The Walgreens purchase of the remaining stake in Boots comes after the British group was itself subject to a leveraged buy-out by private equity group KKR that saw it move its legal headquarters from Nottingham to Switzerland and avoid hundreds of millions of pounds in taxes
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