A Concurrent Resolution respectfully urging the President and Congress to enact the "Stop Corporate Inversions Act of 2014."

Whereas, Although companies merge with, acquire or are acquired by foreign companies for any number of strategic reasons, a recent surge in the number of corporations that have expatriated, or moved their tax domicile overseas in order to reduce their U.S. tax liability has resulted in public outrage, and Congressional and Presidential proposals; and

Whereas, When a U.S. corporation combines with a smaller foreign company and effectively becomes a subsidiary of a foreign-based parent as a result, it is referred to in tax parlance as an "inversion;" and

Whereas, The domestic income of U.S. corporations is subject to federal income taxation, as is foreign-source income when it is repatriated to the U.S. through dividends; and

Whereas, Most other countries tax only the domestic incomes of their domestic companies, and low corporate tax rates in countries such as the Republic of Ireland, where the rate is 12.5 percent, incentivize some companies to move their headquarters overseas for the tax advantages; and

Whereas, Section 7874 of the federal Internal Revenue Code (26 U.S.C. s.7874) enacted in 2004 following a number of U.S. corporate expatriations, treats an inverted foreign parent as a domestic corporation for tax purposes if at least 80 percent of the domestic entity's stockholders are stockholders of the new foreign parent, or alternatively, if at least 60 percent but less than 80 percent of the stockholders of the former entity are stockholders of the new foreign parent, the foreign parent may be subject to certain adverse tax consequences including an excise tax on certain executive compensation and the disallowance of net operating losses against inversion gain; and

Whereas, The provisions of section 7874 have been used by certain corporations to change tax domicile without any corresponding change in the location of production, employment, sales, management, or ownership; and

Whereas, The potential revenue loss to the U.S. Treasury due to inversions is estimated at almost $20 billion over the next decade, with some estimating the loss will be even greater; and

Whereas, Among the corporations that have recently undergone inversions, or that have expressed an interest in doing so, are multiple pharmaceutical firms and a large drugstore chain, for whom receipts from the U.S. government and taxpayers in the form of Medicaid and Medicare are likely considerable; and

Whereas, President Obama recently expressed a sentiment undoubtedly shared by many Americans about recent high-profile corporate inversions, when he said, "I don't care if it's legal. It's wrong. You shouldn't get to call yourself an American company only when you want a handout from the American taxpayers;" and

Whereas, Currently pending in Congress, the "Stop Corporate Inversions Act of 2014" modifies section 7874 of the federal Internal Revenue Code so that an inverted foreign parent is treated as a domestic company for tax purposes if more than 50 percent of its stock is held by shareholders of the former domestic corporation, or if the affiliated group that includes the foreign corporation has significant domestic business activities in the U.S. and is primarily managed and controlled in the U.S.; and

Whereas, The pending legislation would have effect retroactive to May 8, 2014 regardless of the date of enactment so that the several corporations that are currently negotiating deals with the goal of inverting are put on notice; and

Whereas, Domestic corporations enjoy the myriad benefits of the U.S., including its laws, security, capital markets, research and development, often benefit from government contracts or subsidies supported by U.S. taxpayers, and should be prevented from avoiding taxation simply by changing their tax domicile without any corresponding geographic shift in operations, employment, management, or ownership; now, therefore,

Be It Resolved by the General Assembly of the State of New Jersey (the Senate concurring):

1. The Legislature of New Jersey respectfully urges the President and Congress to enact the "Stop Corporate Inversions Act of 2014," H.R. 4679, and S. 2360, to prevent further opportunistic corporate expatriations that deplete the U.S. Treasury, harming the economy and American families in the process.

2. Copies of this resolution, as filed with the Secretary of State, shall be transmitted by the Clerk of the General Assembly or the Secretary of the Senate to the Majority and Minority Leaders of the United States Senate, the Speaker and Minority Leader of the United States House of Representatives, and every member of Congress elected from this State.

STATEMENT

This resolution respectfully urges President Obama and Congress to enact the "Stop Corporate Inversions Act of 2014," which is pending in Congress as H.R. 4679 and S. 2360. Inversion is a type of restructuring in which a U.S. corporation acquires or merges with a foreign company, and as a result, effectively becomes a subsidiary of a foreign-based company. Often, the location of production, employees, sales, and management is no different after the inversion, and there is continuity of stock ownership. In many cases, reduced U.S. tax liability is the primary motive for the transaction. The potential loss of revenue to the U.S. due to inversions is estimated at nearly $20 billion over the next 10 years.

Currently, federal Internal Revenue Code section 7874 addresses inversions and sets out tests under which a foreign parent corporation may be deemed a domestic corporation for tax purposes, or under which a foreign parent corporation may be subject to certain adverse tax consequences. These tests hinge on the percentage of stockholders of the former U.S. company that continue to be stockholders in the new foreign company, and have been strategically used by companies as tax loopholes.

The "Stop Corporate Inversions Act of 2014" is currently pending in Congress and treats a new foreign parent as a domestic corporation if more than 50 percent of its stock is held by shareholders of the former domestic corporation, or if the affiliated group that includes the foreign corporation has significant domestic business activities in the U.S. and is primarily managed and controlled in the U.S. By expanding the definition of inversion and therefore, making it less advantageous for a corporation to avoid U.S. taxation by simply changing its tax home without any corresponding change in the location of operations, ownership, sales, or management, this legislation attempts to close a loophole that has been exploited at the expense of the U.S. Treasury and taxpayers. In order to stop opportunistic inversions that are done exclusively to avoid or minimize taxation, it is respectfully urged that the "Stop Corporate Inversions Act of 2014" be enacted.