Members of Congress were angered by the news in April that Pricewaterhouse Coopers Consulting is inverting and that no special risk disclosures are needed in securities filings about the pending bills in Congress that are supposed to halt inversions. PwCC said none of the bills would apply to its transaction.

A corporate inversion is a transaction where a US company with significant foreign subsidiaries turns itself upside down so that the foreign subsidiaries are owned by a new holding company — often in Bermuda — and what was formerly the US parent becomes just another subsidiary of the new Bermuda parent. An inversion is done to keep foreign earnings outside the US tax net.

The Connecticut attorney general filed suit in May against Stanley Works to block a plan by the company to move its tax domicile to Bermuda. The state charged that the shareholder vote approving the move had not been properly conducted. The company is in the process of repolling its shareholders.

Meanwhile, the US Senate is expected to vote as early as June on a bipartisan bill to stop inversions. The measure faces an uncertain future in the House. The chairman of the House tax-writing committee — Rep. Bill Thomas (R.-California) — said initially that he is not keen on legislating against inversions, but he scheduled a hearing on them for June 6.

The Bush administration released “preliminary” results of its own study into inversions in late May. The US Treasury secretary, Paul O’Neill, said, “When we have a tax code that allows companies to cut their taxes on their US business by nominally moving their headquarters offshore, then we need to do something to fix the tax code.” The report was short on specifics. O’Neill called on Congress, at the same time, to fix the parts of the tax code that cause US companies to feel they must move offshore in order to compete effectively with companies from other countries that tax on a “territorial basis,” unlike the United States, which taxes American companies on their worldwide earnings.

The bill the Senate is likely to pass as early as June distinguishes between “pure” inversions and “limited” inversions. A “pure” inversion is one where the new foreign parent company ends up with substantially all the assets of the inverted US company and former shareholders of the inverted US company own at least 80% of it. “Pure” inversions after March 20, 2002 will essentially be ignored: the US will treat the new foreign parent company as if it remained a US corporation.

A “limited” inversion is one where former shareholders end up with more than 50% of the new parent company. Limited inversions after March 20 will not be ignored, but the US will make sure a full “toll charge” is collected on the appreciation in value of the assets that are moved outside the US tax net, and the inverted US company will have to get advance approval from the IRS for all transactions with affiliates for the next 10 years after the inversion.

The requirement to get advance approval for transactions with affiliates would also apply to companies that inverted in the past. They would need approval for 10 years measured from last January.