Hillary Clinton's plan to address inversions

Hillary Clinton has released, through her campaign website, a plan to address corporate inversions, such as the Pfizer-Allergan deal.

In addition to limiting tax-effective inversions to deals in which the foreign "acquirer" is actually larger than the domestic "target" - thereby addressing "minnow swallows whale" deals that potentially can work (if not too extreme) under current law - the plan would also address the U.S. tax benefits that companies anticipate when they plan inversions, along lines similar to those that I have advocated, such as here.

First, the proposal would require companies that invert to pay an "exit tax" on their previously accumulated, but as yet untaxed, foreign earnings.  The logic here is that, in principle, these taxes have merely been deferred, pending the occurrence of a taxable U.S. repatriation of the funds. However, inversion can make it far easier to avoid ever engaging in a taxable repatriation. Thus, in a way it's like skipping town to avoid repaying one's loans from the local bank. The exit tax would take the form of a deemed repatriation, thus eliminating this pointless incentive to "skip town" just because one has tax-planned one's way into having very high reported foreign earnings.

Second, the proposal would address "earnings stripping," which typically becomes a lot easier when a U.S. company expatriates. The classic, most straightforward earnings-stripping device is to borrow money from, and thus pay deductible interest to, foreign affiliates within one's own global corporate group. But under the U.S. rules, if a U.S. company pays interest to a foreign subsidiary, the effect of the U.S. interest deduction is offset by the company's having to pay current U.S. tax on the subsidiary's receipt of the interest income. Inversion permits U.S. companies to borrow from foreign affiliates that are not their subsidiaries (e,g., their new corporate parents), and thus that are not subject to the offsetting inclusion. Addressing this tax planning device, as the plan would do (although I have not yet seen the details) could further reduce U.S. companies' tax incentives to invert.