The regulations issued by the Treasury Department in April took surgical aim at some of the chief benefits of a so-called inversion, in which U.S. companies are technically purchased by smaller foreign firms and then move their headquarters to a low-tax country in order to reduce their U.S. levy. The new rules made it more difficult, for example, for companies to use a practice known as "earnings stripping" that enables companies to lower their taxable U.S. profits.
But in its suit, the U.S. Chamber and the Texas Association of Business say the Obama administration rules went too far.
The Treasury Department "simply rewrote the law unilaterally. This is not the way government is supposed to work in America,” U.S. Chamber President and Chief Executive Thomas J. Donohue said in a statement.
The Treasury Department said in a statement it would have preferred Congress adopt legislation to stop inversions, but acted in the absence of congressional action. "This action was based on strong policy interests and clear legal authority," the statement said. "We will continue to defend these regulations, which will help slow the erosion of our corporate tax base.”
The lawsuit will likely ensure that a simmering fight over the U.S. corporate tax code drags into next year as large American companies face pushback in the United States and Europe over the lengths they go to to lower their tax bills.
In the United States, the Obama administration and lawmakers in both political parties are frustrated by large U.S. firms that either stage inversions or leave their foreign profits overseas where it cannot be taxed by American authorities. U.S. companies has about $2 trillion in such un-repatriated profits at the end of last year, including nearly $200 billion from Apple alone.
But the business community, including the Chamber of Commerce, argues corporations are acting appropriately given the broken U.S. corporate tax code. The federal corporate tax rate, 35 percent, is one of the highest in the developed world, though few companies pay that much.
“Instead of breaking the rules to punish companies engaged in lawful transactions, Washington should just do its job and comprehensively reform the tax code,” Donohue stated. “The real solution is tax reform that lowers rates for all businesses, allowing American companies to compete globally and the United States to attract foreign investment.”