By Kevin Drawbaugh and Patrick Temple-West
WASHINGTON (Reuters) - Taking aim against corporate tax avoidance, Democrats in the U.S. Congress called on Tuesday for curbs on U.S. multinationals that shift tax domiciles abroad in deals known as "inversions."
While still rare, these deals are becoming more common, with two recently attempted transactions by Pfizer Inc and Omnicom Group Inc drawing attention to the strategy.
Under the proposed legislation, a two-year moratorium would be imposed on the corporate tax base-eroding deals, along with other new restrictions making them harder to do. "Our legislation would clamp down on this loophole," said Senator Carl Levin, the Senate bill's lead sponsor, in a statement.
A similar bill was introduced in the House of Representatives by Levin's brother, Representative Sander Levin, with nine co-sponsors. If enacted, the legislation would apply to inversions completed after May 8.
Republicans have expressed concern about inversions, but none co-sponsored either of the new bills.
Neither measure was likely to become law soon because Congress is deadlocked on fiscal issues, but policy analysts said the bills signaled a new urgency about fixing the U.S. tax code, last overhauled in 1986 and riddled with loopholes.
"Congress will not take action this year to 'stop' inversions ... 2015 will see a bipartisan comprehensive tax reform effort," said Terry Haines, head of political analysis at International Strategy and Investment Group LLC.
TWO MAJOR DEALS
Both big inversions attempted recently have stumbled. One was a merger of U.S. advertising firm Omnicom with French rival Publicis Groupe SA. That deal collapsed.
The other was drugmaker Pfizer's pursuit of UK competitor AstraZeneca Plc. That deal was thrown into doubt on Monday when AstraZeneca rejected Pfizer's latest offer.
Several smaller inversions have succeeded. About 50 such deals have been done in the past 25 years, with half occurring since the 2008-2009 credit crisis abated.
U.S. drugstore chain Walgreen Co has been under pressure from some investors to do an inversion with Alliance Boots Holdings Ltd, the Financial Times has reported.
Inversions typically involve the buyout by a U.S. company of a foreign company and a restructuring to "reflag" the U.S. firm for tax purposes to the foreign company's home or elsewhere.
There are some restrictions on inversions. President Barack Obama earlier this year proposed tightening the restrictions in his 2015 budget. He wants to lower the maximum level of U.S. ownership allowed in an inverted foreign company to 50 percent from 60 to 80 percent or more depending on the case, making the deals harder to do.
The Senate bill resembles Obama's proposal but adds the two-year moratorium. Like the Obama proposal, the bill would also block inversions if the inverted company's management and main business operations stay in the United States.
(Editing by Howard Goller and Cynthia Osterman)