Need to leave. Any comments on that. Steve, do you want to start . Sure, i can address that. I do not think shifting to a territorial system is right. The two problems that weve highlighted here are earning stripping and the deferred accumulated earnings of these controlled foreign corporations. If we shift to a territorial system in which a u. S. Company is only taxed on its u. S. Source income, and not taxed on its foreign income, there will be all the more incentive for multinationals to strip income from the u. S. Base and shift it abroad. Isnt that the first step and then you deal with all those issues let me finish my answer. So as part of any consideration of territorial, we need to address the earnings stripping issues that were discussing here. One of the observations professor shay made in his article, he wanted treasury to adopt regulations that could fold into tax reform and weve got to address earning stripping and we have to do it sensibly and i think we could fold that in. Second, the other problem that weve highlighted here is the large stock of accumulated earnings offshore, the huge i. R. A. S that have not been subject to u. S. Tax. I disagree with john. I think the problem of Inverted Companies is serious and pressing. Theres a 2 trillion dollar stock of deferred earnings abroad. And whether we go to territorial in any particular fashion, the deal is under our worldwide system today that u. S. Companies are expected to pay tax on their worldwide income. We granted them relief by allowing them to park their earnings abroad with the expectation that they would be returned and subject a tax. We granted one holiday in 2004 and promised never to grant a holiday again. So weve got to deal with that issue as we shift as well. So i dont think theres a pansy of lets just tackle all this in reform and leave the rest for later. I think the deal was that if they brought the money back it would be subject to u. S. Taxations. If its offshore and stays offshore and youre going to a territorial system, there is really a disconnect there . John, you wanted to answer. Let me try to respond. Steve again said a lot on this issue of transition to a territorial system. Its a question of what do you do with historic earnings of u. S. Companies. At least the bills that have been put forth ill say when japan and the uk moved to territorial systems, they left the Companies Bring it back, no toll charge. The u. S. All the bills that have been introduced impose a toll charge of 5 , 8 , depends on the proposal. None of this inversion activity changes that. Steve didnt get this quite right in his article. The u. S. Company after an inversion is still a u. S. Company, still owns cfcs and those will still be subject to the toll tax. They would be very happy to find out they arent, but they will be. So i think thats a red heroin. I dont think theres any panaceas. Will that exacerbate earnings stripping. Maybe. I will point out the rest of the world have moved to territorial systems. The rest of the world do not seem to be having earnings stripping problems that were conjuring up today, the uk, its not a problem with the uk, its not a problem in japan and if its a problem here, we can deal with that problem. Sir, can i continue to address i just go ahead. John, im not recalling saying what you said in the article, but its in a footnote. But if a company is under a u. S. Company, those earnings still remain subject to u. S. Tax jurisdiction. I think i said that before here. But it is possible through a post inversion planning transaction to decontrol that company in a range of circumstances, sometimes it wont be practical but sometimes its practical and it can be done without triggering a u. S. Tax. If that is done, then those earnings are no longer subject. Thats the concern. Again, guiding us into the weeds and we can talk about that later. I agree with what you said. Okay. Let me just say, i will note to the audience that were going to try to avoid detailed statutory interpretation in q and a as webest we can. I have a number of comments. There will be a side bar here after the panel for people what want to press those. I want to keep it broader for all of the audience. Let me mention two questions i will ask any who wants to respond and take another question from the room. One question is i think theres a general confusion about whether or not inversions result in employment in the United States shifting or not. So im going to ask folks to address that. The second and that was from jennifer. Sam sabo from online asks us also about the decision made by walgreens when they purchased boots and chose not to invert. And they said that at the time that if they chose to invert they would be subject to intense scrutiny from the irs for many years to come and the impact of that uncertainty was sufficient to deter them from inverting. Specifically, they said, a protracted controversy with the irs including litigation that could go on for years, almost a direct quote, would complicate and impede everyday tax and Business Planning so that with the implicit threat of such uncertainty et cetera, et cetera. If you would comment, please, on maybe are there some firms that will not undertake this direction simply because of the sort of heightened scrutiny it will subject them to . So let me take the first question first because i think its really important. Are any jobs leave the u. S. Because of these inversions. The answer, can you put the chart back up, the picture do we still have that available . The u. S. Company after the transaction still exists. Its just owned by a Foreign Company. No jobs leave the United States. No real assets leave the United States. No capital leaves the United States. All thats happened is the shareholders of the former u. S. Company are now shareholders of a foreign parent. Capital isnt leaving the United States. Jobs arent leaving the United States. Capital is actually coming back to the United States through the techniques that steve would like to stop through regulation, the self help territoriality. It is true and if the u. S. Company is larger than the Foreign Company, so the Foreign Company still cant be it has to be 25 the size of the u. S. Company the management of the combined company will be a u. S. Company. Does that mean they have to move overseas . No. Management can still stay in milwaukee or in whatever city theyre in, will there be Board Meetings in the uk . Sure. But a Board Meeting is hardly a major loss of jobs or capital. And that is really confused in the public discussion on these transactions. People think were hallowing out real asset, real investment. We are not. Steve, how big a deterrent is the heightened scrutiny that any company would get from treasury if they inverted . To talk specifically about walgreens to put that in perspective, walgreens was had already acquired 55 of its target and activist investor came in and said we want you to turn the rest of your acquisition into an inversion. In order to do that, they would have had to restructure the transaction in a way that would have raised a number of issues under existing law that would properly have attracted scrutiny by the irs. So that is a special case. And i think for those of us who served in the tax functioning government either treasury or the irs know, a, how incredibly important the integrity of treasury and irs are is to our government. And, b, that the irs really plays it straight and looks for where there are tax issues for which there is a real potential adjustment. And i dont think just because theyre inverted, it depends how you do it, how clean it, what issues will be raised. There certainly could be a transaction like that that would not attract material scrutiny. All depends on the facts of transactions. And wall greens is an example of that. Okay, great. Other comments in the room here . You have a question right here and then well go back to the back of the room. So right here and then back there. Were waiting for a mic to get to you in the second row, please. Thank you. Thank you. My name is buck chapten. John, i just get to the point when you just said theres nothing the Transaction Capital comes this way, jobs stay here. I worry about the point i guess steve made that that really speaks to the integrity of the tax system, doesnt it . People read about it in the paper, it happening and nothing really changes. They just avoid a tax. And let me just say one other thing, wall greens would be stupid. Why dont you go ahead. Buck, i do not think nothing happens in these transactions. And thats why i dont think of them as inversions. The original inversion transaction is when a company merged into its own subsidiary. Nothing did happen there and they did it to get their money back. Congress didnt like that so in 2004 they enacted a statute to stop that but they wanted legitimate mergers to continue. And indeed secretary lew said he wants legitimate mergers to continue. Congress defined a legitimate merger as one where the Foreign Company was at least worth 25 of the u. S. Company. So there is a legitimate transaction going on here. And i do not think companies by and large are doing this just to get these are business combinations. You dont take your company and merge it with another company thats 25 your size just for tax reasons. You find a real]l1ynfnjuj combination to be sure you have the Foreign Company be the parent for tax reasons, just like happened in chrysler diamond. Well, but the point is, is it not, that the acquired company, will you will, the former u. S. Company, it doesnt change anything, may call its address there, but the people are managed here. No. Whats changed is its now got its combined with a foreign business. Look, i do not think companies should have to do this and i dont want to defend these transactions. I think we need to change our tax code so they dont have to do them. I cant believe you think we should force companies to keep their cash outside the United States. If you could just add to look. Folks who do acquisitions look at the discounted cash flow and say, am i richer afterwards or not . And part of that discounted cash flow are tax savings. And you weight them differently depending on your management frankly. It varies from company to company. What he is referring to is the fact that in contemplating the inversion in the walgreens transaction, a very substantial amount of the potential discounted cash flow benefit came from tax savings. That is all were trying to deal with. Were trying to say get the law, whether by regulation or law, to a situation where deals are done on pretax economics, if they work, they work, if they dont work they dont work. And so part of the reason why im more sanguine than a lot of people about putting in regulations if theyre well designed and fair is because if a transaction a transaction will still go forward if they can do it by the rules that are properly designed, okay. The fact is that the current rules weve said since 2007 in a treasury report issue by the Bush Administration are not working. And that is why there have been budget proposals almost since and now were paying a cost of having done nothing on this subject. But i havent heard you or steve i agree with you address the fact that therefore treasury said to the congress, please change the law. We need the law changed, amend section 163 j. Congress hasnt for Inverted Companies, congress hasnt gotten around to doing that yet, but thats congresss decision. Once treasury decides congress isnt going to do it, they say well were going to act on your own. Well issue some regulation. I think theres a subtle difference here in that it would be more desirable for congress to do it and secretary lew said that. The best practice is for congress to do it. Now, youre saying the word necessary thats what the treasury says. I understand. Theyre saying the use of that word notes that they are otherwise impotent. Until theres a change in the regulation they can do nothing. Im not sure that necessarily follows. It is better for congress let me respond. I think what im saying is when they say its necessary, theyre implicitly saying i dont have the authority under these other code sections. That statement was made in budget documents that were issued before the pfizer deal, certainly drafted before the pfizer deal, before 100 billion more and now more than that in issue deals. There is a saying that when the facts change you should change your thinking. And i think what we heard from secretary lew this morning was his thinking has changed. And its clear that its changed because of those developments. And we can disagree with whether its right and thats perfectly fine. I happen to agree with the secretary. This is important. These facts, these change in facts are important and the treasury needs to act. So i agree when the facts change you should change your opinion. I dont think when the facts change it changes your authority to act. I think it makes it more important for congress to act, much more important. I think congress should act. I hope they do act. But i dont think because facts change it changes the law. Sally said before just because you have the authority doesnt mean you have to use it. Its clear the treasury didnt. I disagree with your reading of the budget statement as saying they cant. And it seems to me evident on reading a statute and all the analysis weve gone through today with the great patience of this audience that they have the authority. All right. Lets see. I had promised in the back on the left there. Could you stand so we could see you, please. Mindy hertzville with tech analyst. Part of my question was answered by the previous question, but professor shay stand up first, please. Professor, maybe you could clarify what you meant when you were saying that your proposal was the target only expatriot companies. So i think what you meant maybe was that it would target all inbound companies but you think it would impact just expay ating in order to push that down . What my article actually said was essentially good policy would be to cover all foreign controlled companies. But that theres authority, which i read earlier from the statute, to take on particular factual cases. Theres data supporting looking at Inverted Companies differently and in order to act quickly and to deal with the immediate problem, the tourniquet so to speak, in my article i actually recommended only address only applying the heightened standards to Inverted Companies. Thats a decision treasury could easily not follow. They could say, no, lets do it for everybody. I mention in a footnote in that article that there are political economy reason to not target everybody was just basically to reduce the number of lobbyists you have to deal with in the short term while youre trying to get this done. But im glad you laugh because it was facetious. Okay. Could i get a microphone down here . Thank you. Thank you very much. Tig could you stand up for the benefit of those in the back. Thank you. I guess my question theres been a lot of questions about the regulatory authority, sally, you talked about what the due process was. That seems to be one of the things thats really absent if the Administration Just makes unilateral changes and in particular, some of the things that professor shay talks about on 385 seems arbitrary in determining what is or isnt. So im curious, how is due process carried out if in a matter of weeks the rules are changed . Due process is normally carried out in rule making through the notice and comment process. It takes more than a few weeks, i will grant you that. But it can be done in fairly quick time frame. Im reminded of a regulation that was done by department of treasury. Department of transportation that had to do with with car seats in the front because the air bags were exploding. And were smothering children and women of short stature. And to stop that, d. O. T. Put out a notice called for comments in 30 or 45 days, and were able to turn it around in about five days, so that the total lapse period was about two months. Thats fast. But it can be done. And if there is a need and i cant speak to that, if we do have the tourniquet issue, you can do the notice, you can get the comments, it sounds to me like most of you are pretty up to speed so that if if notice of proposed rule making were to issue, you might be able to get the comments in very quickly. The treasury people could review them very quickly or the irs people could review them very quickly in final rule without going through ira could issue in a matter of months, not a matter of weeks. That is due process, the courts have consistently held that where the Public Participation follows the rules of the apa, section 553, since youre pulling out section numbers, 553 of the apa, that that does satisfy the requirements and provides the public the opportunity. There is in addition a weird position provision in the Congressional Review Act that any regulation that is issued could conceivably be set aside through a motion of disproval if poe both houses of congress and the president sign off on it, it is pure majority. If it happens during this administration, presumably the president would veto that, even if both houses of congress chose to disapprove it. But it is there is a clawback provision. This is more than you ever wanted to know, im sure. But it enables the congress to look back, to claw back, to appear if there were, for example, a republican president in 2016 in both houses were held by the republicans in 2016, they could claw back as far as may or june of 2015. That should set treasury thinking. We dont have until next november or the following year, there is a time frame that they would want to get their reg finished so it cant be clawed back. And if you really care about this, look up the history of the ergonomics rule during the Clinton Administration where in 2000, they clawed back to a june or july rule and disproved it. Very rare, very, very rare. But it is out there. And it is part of the due process scheme. So, steve, you wanted to comment. Treasury works through interpretive rules. Are you okay . I just steve needs to make a plane back to boston to teach a class today, so were goi