The Department of the Treasury released a set of rules Monday aimed at reducing corporate inversions and earnings stripping and they are proving to be problematic for the $160 billion merger of pharmaceutical giants Pfizer and Ireland-based Allergan.
The companies – which announced the historic deal that would make it the world’s largest drug company – would be headquartered in Ireland instead of the U.S., reaping the benefits of the country’s low corporate tax rate.
Treasury’s new regulations, which affect inversions that took place over the course of the past three years, would “prevent a foreign company (including a recent inverter) that acquires multiple American companies in stock-based transactions from using the resulting increase in size to avoid the current inversion thresholds for a subsequent U.S. acquisition.” It would also make it more difficult for corporations to lighten tax burdens through internal loans through deductible interest payments.
Reuters reports, while nothing is set in stone, the companies will likely abandon the deal after discussing the implications of the regulation with their lawyers since the company would no longer benefit from the merger.
“Pfizer is aware that the Treasury will keep ruling against any solution it can come up with,” a source told the wire service.
President Barack Obama has slammed corporate inversions as “unpatriotic,” claiming it’s a companies duty to pay America’s rates.
“A lot of it’s legal, but that’s exactly the problem,” he said at a press conference Tuesday. “It’s not that they’re breaking the law. It’s that the laws are so poorly designed.”
Republicans have been vocal critics of the commander in chief’s plan to try and stop companies from fleeing the country for financial relief, saying America’s unreasonably high corporate tax rate is the real problem.
“While I’m pleased that President Obama acknowledged how our broken tax code continues to hurt our economy, it’s clear that his new regulations won’t solve the problem,” House Committee Ways and Means Chairman Kevin Brady said in a statement. “Americans will continue to watch their jobs move overseas until Washington works together on comprehensive, pro-growth tax reform.”
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