Proposal: No Philadelphia Contracts for Inverted Companies

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By Leslie A. Pappas

March 28 — Companies bidding for contracts from the city of Philadelphia will need to confirm in writing that they have not undergone a corporate tax inversion under a City Council proposal, practitioners told Bloomberg BNA.

The proposal sponsored by Council President Darrell L. Clarke would bar the city from signing contracts with companies that reduce their overall tax burden through corporate inversions. The bill also would require every city contract to include a clause that states the business entity involved “is not a tax inversion company.”

“These tax avoidance schemes are unpatriotic, and are another example of how wealthy corporate interests manipulate the tax system to benefit themselves at the expense of their own nation,” Clarke said in a prepared statement March 10 after proposing the legislation. “Companies that exploit this loophole should not further benefit through public works projects funded by taxpayers.”

The bill defines a tax inversion company as “Any corporation that was legally domiciled in the United States of America that relocated its legal domicile on or after July 1, 2016, to a lower-tax nation, or corporate haven” while maintaining its material operations in the U.S.

The term also includes “any company that employs an earnings stripping strategy, whereby the company uses loans between different divisions, or subsidiaries, of the same company to shift profits out of the United States of America's jurisdiction and into lower-tax foreign jurisdictions.”

William G. Gale, co-director of the Urban-Brookings Tax Policy Center in Washington, told Bloomberg BNA in an e-mail March 28 that he didn’t know of any other city or locality with similar legislation.

A Larger Movement?

The proposal appears to be part of a larger movement in Philadelphia to use the procurement process as a means of achieving other goals, such as social equity, environmental sustainability and bolstering the local economy, Saleem Chapman, policy and advocacy manager for the Sustainable Business Network of Greater Philadelphia, told Bloomberg BNA March 28.

Clarke has introduced other bills linking procurement decisions to diversity requirements, for example. The bill “seems to be part of a broader policy that businesses contracted with the city are invested in the city and moving Philadelphia forward,” Chapman said.

The proposal has the potential to impact a range of businesses, including Englewood, Colo.-based data and analytics company IHS Inc., which announced on March 21 that it would merge with London-based Markit Ltd. .

IHS has done work for Philadelphia in the past, said Jane Roh, Clarke's director of communications. “If this merger is completed and Council President Clarke’s legislation is enacted, IHS would no longer be eligible to receive city contracts,” Roh told Bloomberg BNA in an e-mail March 28.

New Jersey Proposal

New Jersey may have the only other similar proposed legislation linking corporate inversions to the awarding of government contracts. The Assembly approved Bill No. 3624 in December but the bill didn't pass the state Senate in the last legislative session .

The New Jersey proposal, which has been reintroduced as S. 628 and S. 1513, would ban the awarding of state contracts or tax incentives to companies that carry out corporate inversions.

However, the definition of what makes an inverted company is much broader and less clear in the Philadelphia proposal compared to the proposal in New Jersey, Ferdinand Hogroian, senior tax and legislative counsel for the Council On State Taxation in Washington, told Bloomberg BNA in a phone call March 28.

The New Jersey proposal would rely on definitions from the federal Internal Revenue Service, Hogroian said. Aside from New Jersey and Philadelphia, Hogroian said he had not seen similar proposals in any other locality.

The New Jersey Business & Industry Association (NJBIA) urged the Legislature to reject the proposals in the past, saying it would hurt New Jersey’s economy.

Uncertain Revenue Impact

Corporate inversions have little impact on the amount of corporate income tax that companies pay in New Jersey, Andrew J. Musick, NJBIA’s director of taxation and economic development, told Bloomberg BNA.

He said corporate inversions happen because of the federal tax code and have nothing to do with state contracts. “We are concerned that it could cost New Jersey well-paying jobs” Musick said, “and it could make it more difficult to attract companies to the state by reinforcing the reputation that New Jersey has of being anti-business.”

Aside from the awarding of state contracts, a number of states are looking at legislation on how a state collects tax from companies that do foreign corporate inversions, according to Stanley R. Kaminski, a partner with Duane Morris LLP in Chicago.

California, for example, has considered legislation to further limit the effects of inversions, and some states like Alaska and Rhode Island have passed tax haven laws that limit the effects of inversions.

Inversions don’t necessarily reduce the amount of tax a state will collect, however. “This is really a state-by-state issue, and the impact depends on the income tax structure,” Kaminski told Bloomberg BNA in an e-mail March 25.

To contact the reporter on this story: Leslie A. Pappas in Philadelphia at

To contact the editor responsible for this story: Ryan Tuck at

For More Information

Text of Bill No. 160199 is available at Clarke's statement is available at

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