Former Officials Urge Treasury Secretary to Replace Proposed Anti-Inversion Rules with Lower Tax Rates and "Territorial Systems"

Eighteen former officials of the U.S. Treasury Department ("Treasury") urged Treasury Secretary Jacob Lew to reconsider temporary and proposed anti-inversion regulations that are intended to "prevent" U.S. companies from "merging with smaller foreign companies and adopting headquarters abroad." The former officials called on Secretary Lew to abandon that strategy and instead reform the U.S. tax code by lowering rates and establishing a "territorial system" to create a "level playing field with international competitors."

The former officials claimed that "inversions are a symptom" of the "disease" that is "America's anomalous international tax code." According to the officials, this is due to the following factors:

• the U.S. has the highest corporate tax rate among the 34 nations that comprise the Organization for Economic Cooperation and Development ("OECD"), and

• the U.S. operates on a worldwide tax system, unlike 27 of the 34 OECD members that use a territorial system requiring companies to pay taxes only to the country in which those taxes are earned.

The bipartisan group argued that due to the "huge disadvantage to . . . foreign counterparts" of a worldwide tax system, U.S. firms are "enticed" by lower taxes overseas to move their operations to other countries and keep their earnings abroad. For that reason, the officials asserted, the Treasury must focus on addressing "competitive disadvantages that are harming capital investment, employment and economic growth in the United States."

Signatories to the letter included: George P. Shultz, Secretary, 1972-74; John Taylor, Under Secretary, International Affairs, 2001-05; Curtis Hessler, Assistant Secretary, Economic Policy, 1980-81; Phillip Swagel, Assistant Secretary, Economic Policy, 2006-09; Anna Cabral, Treasurer of the U.S., 2004-09; et al.