WASHINGTON -- President Barack Obama says U.S. corporations that adopt foreign addresses to avoid taxes are unpatriotic. His own administration helped one $20 billion American company do just that.
As part of the bailout of the auto industry in 2009, Obama's Treasury Department authorized spending $1.7 billion of government funds to get a bankrupt Michigan parts-maker back on its feet -- as a British company.
While executives continue to run Delphi Automotive from a Detroit suburb, the paper headquarters in England potentially reduces the company's U.S. tax bill by as much as $110 million a year.
The Obama administration's role in aiding Delphi's escape from the U.S. tax system may complicate the president's new campaign against corporate expatriation.
After a wave of companies announced plans to shift addresses this year, Obama last month labeled the firms "corporate deserters."
The Delphi case also highlights how little attention the administration paid to the tax avoidance technique until recently. Only this year did Obama include a measure in his annual budget proposal to prevent some tax-driven address changes, which are known as "inversions."
Thanks to gaps in a Congressional ban on contracts with inverted companies, his administration continues to award more than $1 billion annually in government business to more than a dozen corporate expats.
The Obama administration is now trying to rescind the tax benefits of the Delphi deal that it helped broker.
In June, the Internal Revenue Service told Delphi that the 2009 address change should be disregarded for tax purposes, and that Delphi must pay taxes as a U.S. company.
Delphi says in a securities filing that it will "vigorously contest" the IRS's demand.
"The recent rise in inversion transactions has the IRS and Treasury and the president understandably rattled, so they're now trying to play catch up," said Julie Roin, a tax professor at University of Chicago Law School. "They were worried about other things in 2009."
U.S. companies have been inverting for decades. The pace of departures began to quicken about two years ago, as a series of drugmakers sought to become Irish. The issue caught the attention of lawmakers and the Obama administration this year.
The companies are trying to escape the country's 35 percent corporate income tax rate, the highest in the developed world. With some of the country's biggest companies, including Deerfield, Illinois-based Walgreen Co. and New York-based Pfizer Inc., having considered such plans, legislators are increasingly concerned that the U.S. corporate income tax base will dwindle.
One Congressional estimate puts the cost of inaction at $19.5 billion in forgone revenue over the next decade.
The Treasury Department said Wednesday that it is examining options for curbing inversions that wouldn't require Congress to act.
Such changes could limit inverted companies' ability to claim interest deductions that reduce their U.S. taxable income.
To be sure, the administration's goal in helping Delphi in 2009 was to prop up its main customer, General Motors -- not the corporate tax base. The Treasury Department said at the time that it wouldn't micro-manage GM or force changes for government policy reasons, although it did intervene in the politically sensitive area of executive pay.
Adam Hodge, a Treasury Department spokesman, said the department's work with Delphi was limited to providing funding through GM in order to shore up a crucial supplier for the automaker.