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US President Barack Obama could bypass congressional gridlock curb corporate tax 'inversions' on his own.

US President Barack Obama could prevent large US corporates from relocating their operations in less onerous tax jurisdictions via mergers or takeovers - the process known as tax inversions, according to a former senior US Treasury Department official.

By invoking a 1969 tax law, President Obama could circumvent congressional stalemate and restrict foreign tax-domiciled US firms from what the US regards as "earnings stripping": a variety of financial manoeuvres which become available when a merged entity falls under the ambit of a tax authority other than the IRS.

Stephen Shay, a professor at Harvard Law School and a former deputy assistant Treasury secretary for international tax affairs in the Obama administration, said some of the many inversion deals that are reportedly in the works might be stopped.

Shay, who is a contributor to Tax Notes International, the journal compiled by US tax lawyers and accountants, told Reuters that "people should not dawdle".

The regulatory power conferred by the tax code section Shay has in mind, known as Section 385, is "extraordinarily broad" and will be a "slam dunk" for the Treasury Department, he added.

US versus UK

In the US, the standard corporate tax rate on profits is 40%. In the UK, it has been steadily slashed to 21% in 2014 – and another 1% will come off in 2015.

Unless the US slashes its corporate tax rates, more firms will quit to countries such as the UK and Luxembourg to sniff out lower bills from the government.

Nigel Green, the founder and CEO of the deVere Group made the claim days after US pharmaceutical firm AbbVie merged with its Dublin-based counterpart Shire in a move that will reportedly slash its tax bill.

And two failed mergers between US firms Omnicom and Pfizer and British companies were allegedly motivated by a desire to lower tax bills by in the UK.

Large US corporates would argue that they cannot compete on a level playing field with global competitors unless they can merge with a company based in a lower income tax jurisdiction like the UK or Canada.

Lee Shepard, another editor at Tax Notes, describes the process as part of the "corporatocracy", which is nothing less than a global trade war taking place under the guise of taxation.

US Treasury Losses

A nonpartisan congressional research panel has estimated that the US Treasury stands to lose about $20bn (£11.8bn, €14.9bn) in revenue from corporate tax inversions.

But if Washington prevented companies from moving overseas to gain tax advantages, it could raise an additional $19.46bn over a decade, according to research published by The Wall Street Journal and the Joint Commission on Taxation.