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U.S. Senate Democrat urges tax overhaul to halt inversion ‘virus’

WASHINGTON (Reuters) – The Senate Finance Committee’s top Democrat called corporate tax inversions a “virus” on Thursday, saying they threaten to spread unless Washington moves quickly to overhaul the U.S. tax code.

“The inversion virus may not have been quite as active in the past few weeks,” said Senator Ron Wyden, referring to the deals in which U.S. companies buy smaller, foreign rivals and adopt their legal nationality for corporate tax purposes.

“While the inversions have slowed, I don’t think we’ve seen the last,” Wyden said, in remarks delivered at a tax conference.

About half of roughly 50 such deals in the past three decades have taken place just since 2008, often drawing criticism from politicians for eroding the U.S. corporate tax base.

Critics of the deals include Democratic President Barack Obama, whose administration moved to crack down on them in September by imposing new Treasury Department rules making the deals harder to do and less appealing.

The chief drivers of inversions, according to tax experts, are tax-avoidance strategies designed to shift profits out of the United States, reducing taxable U.S. income, and to access profits already parked abroad at little or no U.S. tax cost.

Some critics blame the statutory U.S. corporate income tax rate, which is among the highest in the world, for inversions. But a Reuters analysis suggested the rate had little to do with some recent big inversions, including those by Mylan Inc and Medtronic Inc. [ID:nL1N0VI0FV]

Wyden called the tax code “an economic straitjacket that is choking innovation” and causing too many businesses to devote too much time and money to gaming the tax system. “It is long past time for comprehensive reform,” he said.

Politically difficult and requiring strong leadership, tax reform has not been accomplished since 1986. Wyden said the finance committee is trying again, but must move quickly, with temporary tax breaks known as “extenders” again expired.

The longer it takes to tackle reform, the more likely that “two lines” will form before the committee – one for advocates of tax reform, and one for those seeking renewal of extenders.

“As the year goes along, the drum beat for the extender line will get louder and louder,” he said.

(Reporting by Kevin Drawbaugh; Editing by Tom Brown)

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