House Republicans should slow down their consideration of atax-overhaul bill after investigative reports Sunday allegedoffshore tax-avoidance by U.S. multinational companies includingApple Inc. and Nike Inc., congressional Democrats and tax-advocacygroups said.

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But the Republican chairman of the House Ways and MeansCommittee indicated Sunday that the panel would stick to its plansto consider the bill this week. Representative Kevin Brady said hebelieves lawmakers “have a pretty good handle” on how to addressthe erosion to the U.S. tax base that results when corporationsshift profit offshore. House leaders want to pass the bill byThanksgiving, in roughly 2 1/2 weeks.

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The bill that Brady released last week would impose a 20% excisetax on certain payments that U.S. companies make to overseasaffiliates—a potential source of profit-shifting to tax havens. Italso called for a tax of roughly 10% on some foreign profits forcorporations going forward. The excise tax measure has alreadydrawn opposition.

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For individual investors, the bill contains a provision aimed atcurbing a strategy under which investments are routed throughreinsurance companies in tax havens to gain a U.S. tax break. Whilethe legislation doesn't name specific industries or countries,hedge funds have used the strategy in Bermuda, which doesn't levy acorporate income tax.

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In all, the bill is “very weak” on combating aggressive taxevasion by both corporations and individuals, said Jack Blum, aWashington lawyer who's an expert on financial crime andinternational tax abuse. Blum is a former staff counsel to theSenate Foreign Relations Committee who played a key role incongressional investigations that led to the Foreign CorruptPractices Act in 1977.

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Reports Sunday by an international journalism organization andthe New York Times cited a trove of undisclosed documents linkinghigh-ranking officials in President Donald Trump'sadministration—including Commerce Secretary Wilbur Ross and WhiteHouse economic adviser Gary Cohn—to extensive holdings in offshoretax havens such as the Cayman Islands and Bermuda. For that reason,Ross and Cohn shouldn't participate in discussions related to thetax overhaul, officials with two international policy groupssaid.

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Initial reports about Apple, Nike, Ross and Cohn don't allegeany behavior that would violate U.S. tax law. Based on thereporting that appeared Sunday, “nothing here is necessarilyillegal,” said H. David Rosenbloom, an international tax lawyer atCaplin & Drysdale and a former senior Treasury tax official inthe late 1970s. “There's nothing illegal about Americans havingeither an offshore account or an interest in an offshorecompany.”

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Nonetheless, the disclosures suggest that the rapid scheduleHouse leaders plan to use to advance their tax bill is inadequate,said Clark Gascoigne, the deputy director of the FinancialAccountability and Corporate Transparency, or FACT, Coalition. Thenon-partisan policy group focuses on combating offshore taxabuse.

'All the Documents'

“It doesn't make sense to move forward with marking up the taxbill before we can see all the documents,” Gascoigne said in aninterview Sunday. “There are serious concerns about what this taxbill would do to address these offshore problems.”

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Treasury Secretary Steven Mnuchin didn't mention the reports onoffshore tax havens during a public forum in southern California onSunday evening, and instead doubled down on his desire to get a taxreform bill for the president to sign this year. White House SeniorAdviser Ivanka Trump, speaking at the same event, said the Trumpadministration will push an aggressive time table on taxreductions.

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Additional reports are expected, perhaps as early as Monday. OnSunday, the International Consortium of Investigative Journalistsreported that an offshore law firm named Appleby, which producedmany of the 13.4 million documents that journalists obtained, hadoverseen the business affairs of a wide assortment of prominentU.S. hedge-fund executives, corporate leaders and private-equitypartners. They include Paul Singer, Steve Schwarzman, Carl Icahn,Robert Mercer, Sheldon Adelson, Steve Wynn, Tom Barrack andbrothers Charles and David Koch.

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While current U.S. tax law permits individuals to use an arrayof offshore accounting maneuvers to minimize their taxes, many suchstrategies could prove politically combustible if additionaldetails are released.

Democrats' Calls

During a break from a meeting of Ways and Means RepublicansSunday afternoon, Representative Mike Kelly of Pennsylvania said hehadn't heard any discussion of the news reports. But House MinorityLeader Nancy Pelosi's office called for committee hearings toexplore the reports.

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“Only by understanding the potential abuses that would occurthrough offshoring under the Ryan-McConnell proposal can Congresswrite a code that ensures that everyone pays their fair share,”said Pelosi aide Drew Hammill.

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“These reports also raise questions about a number of Trumpallies, his billionaire buddies, and multinational corporationsworldwide that have so much to gain from this Republican tax bill,”said Representative Lloyd Doggett of Texas, the top Democrat on theWays and Means' Subcommittee on Tax Policy. He also called fordelaying consideration of the legislation.

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In general, the bill would cut the corporate income tax to 20%from 35% and cut individual income-tax rates for most incomegroups. It would create new rules for partnerships, limitedliability companies and other so-called “pass-through” businessesand cap the tax rate on their business income at 25%, down from39.6% currently.

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With regard to corporate profit-shifting, the bill proposes a20% excise tax on payments corporations make to offshore affiliatesfor royalties or other so-called “costs of goods sold.” Anotherprovision would apply a tax rate of roughly 10% to “high returns”from some offshore affiliates going forward—though it's unclearwhat's meant by high returns.

'Move Quickly'

“Congress must immediately halt action on the proposed tax billand launch a comprehensive investigation into the activitiesrevealed by these leaks,” said Gawain Kripke, policy director forOxfam America, an anti-poverty group that's among the donors to theFACT Coalition.

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But others said the news reports underscore why the committeeneeds to move quickly. “It shows why the tax-reform elements withinthe tax-cut package are so important and why it is so vital to movequickly,” said John Feehery, a Republican lobbyist and former Houseleadership aide.

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In naming Apple, the ICIJ report said documents show the company“shopped around Europe and the Caribbean for a new island taxshelter after a U.S. Senate inquiry found that the tech giant hadavoided tens of billions of dollars in taxes by shifting profitsinto Irish subsidiaries.”

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The report cited one email exchange in which Apple's lawyersasked the Appleby law firm to confirm that a move to an offshoretax haven would allow one of the company's Irish units to “conductmanagement activities … without being subject to taxation in thesejurisdictions.”

EU Concerns

A spokesman for Apple declined to comment. The ICIJ reportedthat the company said it explained the new arrangements togovernment authorities and that they did not reduce the company'stax payments.

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European Union regulators have told the Irish government it mustcollect back taxes totaling 13 billion euros ($15.1 billion) fromApple, saying the country offered the company tax benefits thatgave it an improper competitive edge. The EU has cracked down onother U.S. companies as well.

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The ICIJ report also contains a brief mention of Nike. It says:“The files also reveal how big corporations cut their taxes bycreating offshore shell companies to hold intangible assets such asthe design of Nike's 'Swoosh' logo and the creative rights tosilicone breast implants.” Nike didn't immediately respond to arequest for comment.

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Based on the documents unearthed by the ICIJ, the New York Timesreported Sunday that Ross retained investments in a shipping firmhe once controlled that has significant business ties both to aRussian oligarch who is subject to American sanctions and toPresident Vladimir Putin's son-in-law. The Times report also saidthe files contain references to Cohn, “who was associated with 22Bermuda entities” in his previous roles at Goldman Sachs Group.

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Cohn was Goldman's president and chief operating officer beforehe joined Trump's administration. He played a leading role innegotiating the tax framework that preceded the House bill thatemerged last week.

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The White House press office didn't immediately respond torequest for comment. Trump and several members of theadministration are traveling in Asia this week.

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From: Bloomberg News

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